Global Slump In Gold Jewelry Demand

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. 

Southeast Asia
“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

suggests that wealthy consumers have also become more reluctant to spend amid concerns about the global economy.”

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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Baselworld 2016: Swiss Watch Sales Down 3.3%

The Swiss watch industry reported that the value of its exports fell 3.3 percent to 21.5 billion Swiss francs ($21.75 billion) in 2015. However, compared to the more than 20 percent increase in exports for the five prior years, it isn’t all that bad. However, François Thiébaud, president of the Baselworld Swiss Exhibitors Committee, and Sylvie Ritter, managing director of Baselworld, described the current environment for the industry as “gloomy,” during the annual press conference Wednesday at Baselworld, the world’s largest watch and jewelry fair. The eight-day international show officially begins Thursday. One thing that wasn’t mentioned was smart watches. It was the major topic at last year’s press conference. There are a number of geopolitical and economic issues around the world affecting Swiss watch sales. They include: the turbulence in the Chinese economy, conflicts in the Middle East and the slowing of the Russian economy because of Western economic sanctions. The Chinese economic problems resulted in a drastic decline in the sale of watches in Hong Kong, the world’s largest market for the Swiss watch industry. Perhaps the biggest issue was the depegging of the Swiss franc to the Euro in January 2015, which led to an approximate 20 percent appreciation of the franc compared to other currencies, Thiébaud said during his presentation Swiss watch industry figures for 2015. By country, Hong Kong had by far the largest decline in the value of Swiss exports, down 22.9 percent. The US market (the world’s second largest) experienced an 0.8 percent decline. In terms of the other top markets, China saw a 4.7 percent decline, Italy was the lone bright spot in major markets with a 6.4 percent increase, with Japan down 1.9 percent. The rest of the world, which accounts for nearly 56 percent of total Swiss watch exports saw a 2 percent increase. In terms of materials, steel timepieces experienced a steeper than average year-over-year decline in value at 4.9 percent. These watches accounted for half the overall fall in export sales. Gold watch exports declined by 4.8 percent. Bimetal timepieces fell by 2.6 percent. In terms of the number of pieces, steel products fell by 5.7 percent, while still accounting for one out of two exported watches. The press conference was also the opportunity to introduce Eric Bertrand as president of the Baselworld Exhibitors. He replaced Jacques J. Duchêne who died suddenly and unexpectedly a day before Baselworld’s 2015 press conference. Bertrand took extra time to note his experience in the watch, jewelry and gemstone and said will represent all exhibitors equally. In the past few years, Baselworld has become more dedicated to luxury, renovating the Baselworld fairgrounds and charging more for exhibitors to enter. This has led to the angry jewelry exhibitors. This also led to a decrease in the number of exhibitors from 2,000 in 2010 to 1,500 this year, which Bertrand said was planned. “I am equipped to represent Baselworld across the board,” he said. 

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Regional Instability Causes 3% Drop in Global Gold Jewelry Demand

Emperatriz Maxi Earrings by Carrera y Carrera

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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