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Thursday, August 13, 2015

India Fuels A 14% Plunge In Global Gold Jewelry Demand

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Widespread declines in Asian and Middle Eastern countries led by India fueled a year-over-year 14 percent reduction in gold jewelry demand to 513.5 tons for the second quarter of 2015, according to the World Gold Council. Modest growth in North American and some European markets was not enough to offset the decline.

India, the second largest market for gold jewelry, experienced a 23 percent year-over-year reduction to 118 tons, according to the WGC’s “Gold Demand Trends” quarterly report. This was largely due to extreme weather patterns (heat waves and unseasonal storms) in rural parts of the country, damaging crops, affecting the economic cycle in the regions. This was combined with the government’s decision to trim the selling prices for those crops, including rice and wheat. The rural areas account for about half of all Indian gold jewelry demand, the WGC said. Demand among urban consumers was more resilient.

In China, the world’s largest gold jewelry market, gold jewelry demand fell 5 percent in the second quarter due to the surging than plunging stock markets during the period. Both occurrences caused declines in gold jewelry demand, the WGC said. The rise in the stock market took people’s attention away from gold and the drastic stock market decline led to a detrimental impact on consumer sentiment.

“The Chinese jewelry industry faced a challenging time as manufacturers and retailers chased a smaller pool of consumers, leading to excess capacity,” the WGC said. “This partly helps to explain the increased market share of 18k jewelry as manufacturers reallocated resources towards promoting this higher-margin product.”

One of the few bright spots for the second quarter of 2015 was in North America, led by the US, in what the WGC describes as a “gentle upward course.” Year-over-year growth for the second quarter was 2 percent to 25.5 tons. This was highlighted by a year-over-year 11 percent rise in gold jewelry imports for April and May.

“The slightly erratic nature of US economic recovery has proved a headwind to more convincing growth, but we expect the recovery in demand to gain momentum as yet lower prices feed through to consumers,” the WGC said in its report.

In Canada demand rose by 5 percent and in Mexico by 7 percent. In South America, Brazil experienced an 8 percent decline.

In Europe, growth was marginal with a 1 percent increase in demand driven by modest gains in the UK (6%), Spain (6%) and Germany (7%). This offset declines in France (-8) and Italy (-5).

“While Italy’s export sector benefitted again from the upturn in the US, domestic demand continues to stagnate – hit by the weaker euro,” the WGC said. “UK jewelry demand continued to build on the solid base established in 2012. Total first half demand of 8.2 tons was the highest since 2010 and the recent gold price declines point towards further improvement over the remainder of the year.”

In the Middle East, gold jewelry demand dropped by 20 percent with all countries in the region reporting a decline.

* Turkey - Currency depreciation caused a 30 percent drop in demand.

* Russia – Demand fell by 45 percent. The WGC did not elaborate.

* Iran – The country experienced a number of negative forces driving down second quarter demand by 31 percent, including an increase in VAT, lower oil prices, currency weakness and international economic sanctions.

* UAE – Jewelry demand fell 22 percent due to lower spending by European tourists and regional geo-political tensions.

Among the smaller Asian markets, gold jewelry demand was mixed:

* Thailand – demand fell 5 percent due to continued economic contraction following last year’s military coup.

* Malaysia – Demand fell 5 percent to its lowest quarterly total since 2011due to the introduction of a 6 percent Goods and Services Tax in April.

* Japan – Demand increased 5 percent, aided by higher numbers of Chinese tourists.

* Vietnam – The country outperformed the rest of the region with a 22 percent jump in demand fueled by lower prices.

* Singapore – Demand fell 18 percent.

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