Regional Instability Causes 3% Drop in Global Gold Jewelry Demand

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The world continues to be more complicated and complex as it also becomes more interdependent. The World Gold Council’s Gold Demand Trends report for the first quarter of 2015 reflects this instability.

Global gold jewelry demand for the first quarter of 2015 declined 3 percent to 600.8 tons, primarily due to large swings in demand in regions throughout the world, but particularly in the world’s two largest gold jewelry markets: China and India.

The largest decline in gold jewelry demand in tons came from China, which fell by 10 percent year-over-year to 213.2 (a 23 ton decline), according to the World Gold Council’s quarterly report, Gold Demand Trends. This was offset by a 22 percent rise in demand in India to 150.8 tons (a 27-ton increase).

“The impact of these two key markets is illustrated by removing them from the global total,” the World Gold Council said in its report. “Jewelry demand excluding China grew 1 percent, year-on-year, while removing India from the total yields a 9 percent decline. The extent of this impact confirms the importance of both markets to global consumer demand.”

The WGC said the sharp increase in demand in India was more of a reflection of unusual weakness in the year-earlier period than any particular strength in the first quarter of 2015. Economic uncertainty and temporary government restrictions on the purchase of the precious metal restricted demand a year ago.

The story with China is somewhat similar in that first quarter 2015 demand was paired against a particularly robust first quarter of 2014. The WGC said the current decline in gold jewelry demand in China is due to three factors:

* Slowing GDP growth;
* Rallying stock markets; and
* Cautious outlook for gold prices.

“Against this background of factors, Chinese New Year—traditionally a popular time for buying and gifting gold jewelry—was relatively restrained,” WGC said.

Well-designed 18k gold is particularly appealing to the younger generation of Chinese, according to the report. In recent years, 24k “Chuk Kam” gold far outweighed the lower-karat segment, accounting for around 90 percent of the market at its peak, WGC said. Eighteen-karat gold now accounts for around 12 percent of the gold jewelry market in tonnage terms.

“Despite the year-on-year decline in Q1, the longer-term rising trend remains firmly intact,” the WGC said.

Jewelry demand in Hong Kong was down 26 percent as it was harder hit by the Chinese government’s anti-corruption campaign than the mainland. The number of tourists visiting from the mainland China jumped during the Chinese New Year holiday in February. However, it was followed by a 10 percent decline in March on tension between Hong Kong and the Chinese government. Measures to limit the number of trips Shenzhen residents can make to Hong Kong were introduced in April, which may further dampen demand in the second quarter, the WGC said.

In the US, gold jewelry demand experienced its third consecutive year-over-year increase in the first quarter as what the WGC describes as a “fragile recovery” continues with household wealth and economic growth. This year the increase in first quarter gold jewelry demand was at 4 percent to 22.4 tons.

Higher carat jewelry remains popular the US. “However, (consumers) were cautious in their approach to spending and the trade views the prospects for the remainder of the year with guarded optimism,” the WGC said.

It adds that “conservative consumer attitudes towards spending and a general lack of innovation in the design and market are potential headwinds.”

The UK market continues to mirror US trends, WGC said, where demand there also grew by 4 percent. However, European markets as a whole were weaker where demand dipped by 2 percent to 12.5 tons “amid stronger euro prices and mixed economic signals.”

In the Middle Eastern markets, domestic unrest, particular in Egypt, has had an impact on gold jewelry demand. In Egypt, demand fell by 31 percent to its lowest level since the second quarter of 2012. The entire region, with the exception of Saudi Arabia (which grew by 5 percent), saw varying year-over-year declines that on average were at 8 percent. Russia reported the largest drop in gold jewelry demand at 40 percent. Turkey saw a 28 percent decline in demand.

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5% Increase in Q3 Gold Jewelry Demand

Gold jewelry demand for the third quarter of 2013 increased 5 percent year-over-year to 486.7 tons, the World Gold Council said Thursday, marking the best third quarter performance for the precious metal since 2010. 

In terms of value, gold being used for jewelry for the period fell by 15 percent year-over-year, due to a drop in the trading price of the precious metal, according to the WGC’s Gold Demand Trends report for the third quarter of 2013. Demand for the period was worth $20.8 billion, the lowest quarterly value since the third quarter of 2010.

Global growth for the period was led by high-karat gold jewelry purchases in Asia, the Middle East and the US, 

“An almost universal phenomenon in the third quarter was the increasing popularity of higher carat jewelry,” the WGC said in its report. “Across Asia, the Middle East and in the US, higher carat jewelry was noted as an area of particular growth as the increased investment properties associated with gold of higher purity came to the fore. The fact that jewelry retailers in a number of markets were increasingly stocking investment products (small bars and coins) provided further evidence of the greater blurring of the jewelry/investment distinction.”

Consumers in China generated 163.7 tons of jewelry demand in the third quarter, making it by far the largest single jewelry market. The country’s year-to-date, demand of 518 tons already equals the same amount for the full-year 2012.

“To some extent, exhaustion set in towards the end of Q3 after such a frenetic second quarter, but continued expansion of the retail network confirms that the trade sees prospects for growth,” the WGC said.

Increases were reported in 24k jewelry (known as “chuk kam”), which has a purity rating of 95.95 percent and in “four nines” gold (gold jewelry of 99.99% purity, compared with the typical 24-carat purity of 99.95%). The WGC explained that the former is unique to China and is most popular with consumers in lower tier markets and rural areas as an investment hedge.

Mainland Chinese consumers also attributed to a 28 percent increase in gold jewelry consumption in Hong Kong to 7.5 tons.

In the US, the WGC noted that “demand was a key development.” Gold jewelry demand for the third quarter rose 14 percent year-over-year to 43.4 million tons.

With the exception of fourth quarter demand (driven by holiday sales), the third quarter was the first quarter in four years in which gross jewelry demand exceeded recycling—creating net positive jewelry demand,” the WGC said. “Since Q3 2009, gross new quarterly jewelry demand had been exceeded by the recycling of old gold jewelry as distress selling took off during the economic downturn,” WGC said. “Increasingly positive sentiment among US consumers during the third quarter reversed this trend.”

The report also notes a shift towards 18k jewelry from 14k.

“Given recent developments in the US, consumer sentiment has taken a hit early in the fourth quarter, but the seasonal impact, together with prices holding below US$1,400/oz, suggests a certain amount of resilience,” the WGC said.

India, one of the world’s largest markets for gold jewelry, saw demand drop by 23 percent year-over-year to 104.7 tons due to import restrictions imposed by the government. “Demand for gold jewelry among Indian consumers remains strong, but reduced supply has prevented this demand from being fully realized,” the WGC said.

"The smaller Asian markets had robust growth for the period, with the exception of South Korea where weak consumer sentiment and a sluggish domestic economy dampened demand," the WGC said. "Across the rest of the region, there was a trend for higher karat jewelry pieces of relatively simple design as consumers across the region took advantage of gold’s increased affordability."

Gold jewelry demand in the Middle East increased 9 percent to 51.2 million tons, due to lower prices across the region, the WGC said. The “unsurprising” exception was Egypt.

“The emphasis on 22-karat gold at the expense of 21- and 18-carat diamond-set jewelry suggests demand was stronger among domestic consumers relative to western tourists.”

The third quarter in Turkey, which is traditionally strong, saw year-over-year demand increase 14 percent. In value terms, demand was virtually flat, due to a 12 percent decline in the local currency price of the precious metal.

Russia’s growing middle class, armed with greater disposable income, helped generate a 7 percent year-over-year growth in jewelry demand.

“European markets were again the exceptions to the more positive global picture, with both UK (-14%) and Italy (-7%) posting year-over-year declines due to “economic concerns,” WGC said.

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