Gold jewelry demand in the third quarter of 2016 fell 21 percent, year-over-year, to 493.1 tons largely due to high prices for the precious metal on the world market, according to the World Gold Council. However, every region faced its own difficulties that contributed to the decline.
“Barring just three or four very minor exceptions, jewelry demand fell in every consumer market that we track,” WGC said in its quarterly report, “Gold Demand Trends.”
The third quarter of 2016 was the largest decline since the second quarter of 2014 and the lowest third quarter for jewelry demand since 2011—a time when average gold prices were about 28 percent higher than recent levels. Year-to-date jewelry demand is down 18 percent from last year at 1,423.6 tons, the lowest total since 2009.
The WGC, the market development organization for the gold industry, expects a stronger fourth quarter due to gift-giving holidays throughout the world as well as a drop in the price of gold in October. However, it points out a number of troubling trends that may continued through the end of the year, including the changing tastes of Chinese consumers, the weal consumer environment in European markets, hesitant buying in the U.S. and the US and ongoing conflicts in the Middle Eastern.
India and China Lead the Decline
India demand fell 28 percent, year-over-year, to 154.7 tons in the third quarter due to higher and volatile prices of gold along with fragile sentiment among rural consumers and government regulation as it tries to force the industry to be more transparent, WGC said. India’s share of total jewelry demand has shrunk from 28 percent in 2015 to 24 percent year-to-date.
“India has taken a smaller slice from a smaller pie,” according to the report
On the flip side gold recycling has spiked in the country. The WGC expects rural sentiment to improve in the fourth quarter.
Meanwhile, in China, the country’s appetite for gold is waning as gold jewelry demand fell 22 percent to 141.5 tons, as gold prices reached the highest level since 2013.
In addition, the WGC said consumer preferences are evolving in China, aided by industry efforts. Tastes are shifting away from traditional 24k gold towards higher-designed 18k or gem-set pieces.
“However, this shifting landscape is not purely being driven by changing consumer tastes, according to the report. “Producers are playing a key role in promoting these products due to the higher margins they generate. The industry is still consolidating and competition is fierce. Manufacturers, wholesalers and retailers are battling for market share. Recognition of the importance of brand has led companies to promote their brands more actively through a range of channels, including franchising, celebrity endorsements and media.”
In addition, gold jewelry is competing with the rising popularity of travel and experiences among Chinese.
“Jewelry demand was universally weaker among the smaller markets in as consumers balked at gold prices around three-year highs,” the WGC said in its report.
In Indonesia, the largest market in the region, demand fell by 6 percent year-over-year in relation to slower-than-expected GDP growth in the country.
South Korea witnessed the largest decline in the region, down 24 percent, year-over-year, to 2.8 tons, again led by the high gold price along with economic deceleration in China, which purchases around 25 percent of South Korea’s exports.
Japan was also affected by China’s influence as mainland tourists have been less active in buying gold during their travels to Japan. Demand slipped 4 percent to 4.2 tons.
Middle East in a "Parlous State"
The WGC describes jewelry markets as being in a “parlous state” against a backdrop in regional conflicts with record lows in gold jewelry demand. The region saw a 24 percent year-over-year decline to 24.1 tons, due to cuts in tourist demand, high gold prices and lower oil revenues.
In Egypt, demand fell by 50 percent for the period due to a currency crisis that has almost doubled the price of local gold over the first three quarters of 2016.
In the UAE and Saudi Arabia, demand in both markets plunged 23 percent.
The only bright spot was Iran, which managed a 6 percent year-over-year increase in demand to 11 tons.
Turkey saw a 22 percent drop in demand to 9.4 tons due to a slowing economy, record local prices and uncertainty following the attempted coup, the WGC said. Prospects for the fourth quarter remain weak as well.
United States Growth Stalls
For the first time in three years, U.S. gold jewelry demand declined by a modest 1 percent to 26.2 tons. Year-to-date demand of 74.6 tons is almost exactly on a par with last year.
“Jewelry imports subsided during the quarter as inventory levels across the supply chain are at healthy levels,” WGC said. “Uncertainty associated with the presidential election campaign undoubtedly explains a portion of this weakness, but research
European Demand Remains Soft
The WGC says poor consumer confidence across European markets had an effect on gold jewelry demand, which was down 1 percent to 12.6 tons in the third quarter.
In France, demand has fallen to the lowest level in the history of WGC record keeping. In the third quarter, year-over-year demand dropped 4 percent to 1.9 tons. The country recently introduced a 9k gold segment.
“The market faces the continued risk of silver eating into the market share of low-carat gold jewelry,” the WGC said.
All other European markets saw year-over-year declines of 1 to 2 percent for the third quarter with the exception of Spain, which reported a 2 percent gain.
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