Global demand for gold jewelry increased 8% to 480.8 tons in the second quarter of 2017, according to the World Gold Council. However, the headline figure isn’t as good as one might think as the growth is compared to an extremely weak second quarter of 2016.
Demand remained well below the five-year quarterly average of 586.2 tons, according to the WGC “Gold Demand Trends” report. For the first half of the year, the picture was similar as demand grew 5% from the very low levels of 2016. At 967.4 tons, first half jewelry demand was below 1,000 tons for only the fourth time since the WGC has been tracking gold jewelry demand.
The world’s second largest jewelry market led the gains, showing a year-over-year increase of 41% to 126.7 tons. The WGC in its quarterly report attributes much of this growth to import figures that reached an all-time high of 104.6t in May as the market stockpiled gold ahead of the expected increase in the Goods and Services Tax in June.
“Jewelers and consumers alike crammed their purchases into the first two months of the quarter, slowing down once the government confirmed that a 3% rate would be applied,” WGC said in its report.
The outlook for the rest of the year is expected to be “muted” according to the WGC even though the 3% GST rate was lower than many expected.
“We expect the new tax is likely to cause some short-term disruption as manufacturers, retailers, importers and consumers adapt to the new regime,” the WGC said. “Stock is plentiful across the supply chain and consumers who have recently purchased are unlikely to do so again in the short term. As the market digests this gold, and adapts to GST, we feel the market environment should become more settled towards the end of the year.”
The world largest gold jewelry market saw its second quarter year-over-year demand fall by 5% to 137.7 tons—the lowest for China in five years. First half demand was 4% below levels for the previous year.
Consumers continue to shift away from traditional pure 24k gold to lower-carat, higher-designed and higher-margin gold jewelry. The move is in part “driven by consumers expressing their individuality and differentiating themselves from older generations,” the WGC said. “But it is also an industry-driven trend. Retailers and manufacturers strive to prosper in a competitive industry by enticing consumers with new, innovative and—crucially—higher margin product.”
For example, retail jewelry giant, Chow Tai Fook, launched a 22k collection in May. The range is high purity, with cutting edge designs, targeted at younger consumers and priced on a per piece basis rather than by weight of fine gold. Other companies are following this trend.
The WGC says it expects the Chinese market to bottom out following the steady decline of the 2013 peak.
Other Asian Markets
Overall, the smaller Asian markets were firmer in the second quarter than China with a couple of minor exceptions, the WGC said. Vietnam led the way with a 10% year-over-year gain to 3.9 tons, the second highest quarter for jewelry demand since 2008, as the market continues to recover from the lows reached in 2012.
The gold jewelry market “continues to creep up, building on the base established in 2012,” the WGC said. Demand increased 4% year-over-year to 26.9 tons, although shy of the five-year quarterly average of 28.9 tons. Demand in the first half of 2017 was lifted by improving consumer sentiment, resulting in demand growing 4% to 49.9 tons—the highest first half total since 2009.
Middle East and Turkey
A dip in the local gold price in Turkey resulted in second quarter jewelry demand increasing by 20% year-over-year due to the strength of the Turkish lira. “When lira prices reached record levels in March, consumers started buy, particularly as the wedding season approached,” WGC said.
Regional jewelry demand in the second quarter was flat in the Middle East, “disguising some sharp country-level divergences,” the WGC said.
For example, demand in Egypt dropped 20% year-over-year, hitting a new low of 4.7 tons, due to the very weak Egyptian pound and higher interest rates, WGC said.
Meanwhile, Iran’s jewelry market continues to gain strength as demand rose by 15% to 10.2 tons. Consumer sentiment was buoyed by Hassan Rouhani’s landslide victory in the presidential elections and expectations that interest rates may come down later in the year, WGC said. First half demand rose 20% year-over-year to 22.9 tons—the highest first half total in four years.
Second quarter jewelry demand was weak, down 4% across the region year-over-year, with demand being “particularly anemic in the UK,” falling 10% to a three-year low of 3.8 tons. The WGC blames “prolonged uncertainty over Brexit.”
Meanwhile, Italian demand stabilized in the second quarter as expectations build “for the long-term downtrend in the market to come to an end and—possibly—even for the market to manage some growth in the latter half of this year.”