Gold Demand Trends Full year and Q4 2020

Although jewellery demand showed continued signs of quarterly recovery from the lows reached in Q2 when market lockdowns were at their peak, it remained very weak in Q4. Global demand clambered back above 500t in Q4, but not convincingly: 515.9t is the lowest Q4 in our 21-year data series. On an annual basis, demand collapsed to 1,411.6t – a 34% drop from 2019.

In light of gold’s strong price performance during the year, the value measure of jewellery demand was far more resilient. In US-dollar terms, demand in Q4 grew 11% to US$31.1bn – the highest quarterly value since Q2 2013. After a very weak H1, in which – despite higher average gold prices – the value of jewellery demand fell to an 11-year low of US$29.6bn, H2 witnessed a sharp recovery to US$51.6bn – a rise of 3% y-o-y. The steep increase in the amount that consumers were prepared to spend on gold jewellery could be indicative of diverting expenditure away from experiences (such as travel, restaurant meals, theatre tickets, etc.) towards consumer goods. Such trends were noted in some markets. 

While jewellery demand volumes are likely to remain relatively subdued as COVID-19 continues to impede the normal functioning of many markets across the globe, mass vaccination programmes and signs of improving economic indicators imply that we expect to see continued, if tentative, improvement in the sector in 2021. 

While India and China together generated much of the annual decline in gold jewellery volumes, they were similarly influential in driving the quarterly improvement in Q4. Meaningful recovery in either market will bode well for global demand as we head into 2021.

China

Traditionally a seasonally strong period for gold demand in China, Q4 demand of 145.1t was 10% lower y-o-y. ² Although China’s economy recovered further in Q4, registering 6.5% y-o-y GDP growth, the high gold price and regional COVID-19 outbreaks in some areas weighed on demand. Full year demand fell by a sizable 35% to 415.6t – the lowest annual total for China since 2009. 

Throughout 2020, China’s jewellery market has been buffeted on two fronts. On one hand, the economic damage and restriction on social activities wrought by COVID-19 in Q1 left a lasting dent in annual gold jewellery demand. And on the other hand, structural changes – including retailers reducing their inventories, industry consolidation reducing jewellery retailers’ point of sales in general and the continued shift in young consumers’ preference towards lighter products – also played a role in weakening gold jewellery demand. 

Heritage gold jewellery products outperformed other categories in the last quarter and performed strongly in 2020 overall. With their intricate craftsmanship and inclusion of traditional cultural elements, these products grew in popularity – particularly among high-end consumers whose incomes were less impacted by the pandemic. In addition, pent-up wedding demand, also supported demand for these well designed, Chinese culture-embedding products.

Lightweight hard-24K gold jewellery products with trendy designs maintained their significance in China’s gold jewellery market in 2020. To some extent, the economic slowdown had a relatively positive impact on the popularity of these products; as they are more affordable and trendier than traditional items they were able to maintain their appeal to consumers, especially young consumers with limited budgets. In addition, many jewellers restructured their inventories towards lighter hard-24K products in order to lower their costs of capital during the economic hardship of 2020. Realising the potential shortcomings of ‘per-piece’ pricing (which may not give consumesr enough clarity on fine gold weight and labour charges), some jewellers started to price these hard-24K gold jewellery products by grams, hoping to win consumer trust – our consumer research identified a lack of trust in the purity of gold as a key barrier to gold jewellery purchase in China. 

Looking ahead to 2021, our fieldwork indicates an optimistic attitude among major jewellers in China, who experienced strong sales in recent months. The main reasons behind the more positive outlook over the coming months are:

• The expectation of continued strength in China’s economy, leading to faster growth in consumer disposable income;
• Chinese policy makers have positioned domestic consumption as a priority in coming years;
• Industry consolidation in 2020 weeded out jewellers with weak brand value and problematic cash flows, putting the industry in a healthier position, and
• COVID-19 is widely expected by those in the trade to remain well contained in China.

India 

2020 marked a new low for Indian gold demand in our data series: down 42% to 315.9t. Losses narrowed significantly in the fourth quarter, with demand just 8% lower y-o-y at 137.3t, a significant q-o-q improvement. In local currency terms, the value of Indian gold jewellery demand reached a quarterly record of Rs610.6bn, a sharp recovery from the 12-year low of Rs183.5bn in Q2.

With the easing of lockdown restrictions from September and a reported steady reduction in COVID-19 daily cases, some positive signals of domestic economic recovery came through in Q4. Together with the sharp pullback in the domestic gold price, these factors supported the quarterly recovery in gold jewellery demand. The reopening of the economy and the announcement of successful vaccines also boosted consumer sentiment – the Reserve Bank of India’s Consumer Confidence Index increased to 52.3 in November 2020 from 49.9 in September.³ Underscoring the pick-up in economic activity, Goods and Sales Tax (GST) revenues reached a record high of Rs1.15tn in December – the highest since the tax was introduced in 2017.⁴

The average gold price for Q4 at Rs50,195/10gm was 32% higher y-o-y but 2% lower q-o-q and 10% below the all-time high of ~Rs56,000/10gm from early August. The correction in the local gold price to back below the key psychological level of ~Rs50,000/10gm for much of December spurred bargain buying and pent-up demand. 

Festivals and weddings in Q4 offered the traditional seasonal boost to jewellery demand, although it remained soft on a historical basis. With the end of Adhik Maas on 16 October, sales picked up during Navratri.⁵   And during Dhanteras – considered to be an important gold purchase festival – footfall and gold jewellery volumes improved still further, exceeding local industry expectations.⁶ Some retailers adopted a strategy of spreading Dhanteras promotions over a couple of days to avoid a rush and help maintain social distancing during the festival. The correction in the gold price during the week of Dhanteras helped demand, but a 32% higher gold price y-o-y was a deterrent for some and, overall, Dhanteras volume sales were lower y-o-y.

Pent-up demand from weddings deferred from earlier in the year and rescheduled for Q4 also provided a fillip to jewellery demand. But, with higher gold prices, consumers preferred gold-for-gold exchange for wedding purchases. Commenting on the performance for Q4 2020, Titan in its quarterly update released on 6 Jan 2021 said, “…the growth trend was visible even after the festive season ended… The division has continued to see…very good growth in wedding jewellery sales…and higher share of wedding related products...”.

Resilient rural demand helped support quarterly recovery. Rural demand received a boost in the fourth quarter from a good monsoon, with rainfall 9% above the long-term average. Furthermore, relatively low COVID-19 infection rates, higher minimum support prices for crops and expectations of higher Kharif food grain production (0.8% higher y-o-y) also buoyed the rural economy.⁷ Indicative of the relative health of the rural economy, India’s leading tractor manufacturer Mahindra & Mahindra reported increases in domestic sales of tractors during November and December of 55% and 23% respectively. Gold jewellery retailers in tier2 and tier 3 cities, where economic activity is more dependent on agricultural and allied activities, reported better volume sales in the quarter. 

Despite the economic improvement in Q4, some indicators point towards the recovery being fragile and not yet broad-based. Bank credit growth remained relatively soft and Industrial Production shrank by 1.9% in November after two months of consecutive growth. This suggests that any continued quarterly improvement in jewellery demand is likely to be tentative. Indian consumers remain sensitive to changes in the gold price – particularly at such historically high levels – and this could generate a rapid response to any price volatility, especially around the psychological Rs50,000/10gm level. 

Middle East and Turkey

Gold jewellery demand in both Turkey and the Middle East slumped by around 30% in 2020 to their lowest annual levels in our data series. 

Turkey was one of the few markets not to see a notable q-o-q uplift in gold jewellery demand in Q4. Demand reached 6.8t – up 3% from Q3, but down 25% y-o-y. Gold price movements helped to explain the relatively subdued quarter, as the local gold price in Turkey followed a different trajectory to the US$ price. Significant lira depreciation between August and early November pushed the local price to an all-time high of TL540/g – an increase of around 86% from the start of the year. Unsurprisingly, gold jewellery demand was subdued as a result.

The appointment of a new central bank governor in November – and hefty interest rate hikes shortly afterwards – boosted the lira and saw gold prices drop back, settling at around TL290/10gm by the end of the year. Unfortunately, this also coincided with curfews imposed in December to combat an uptick in COVID-19 cases, which negatively impacted consumer sentiment.

Markets across the Middle East saw double-digit declines in annual demand, with Q4 also seeing some sizable y-o-y losses as the economic impact of the pandemic, together with high gold prices, continued to weigh on demand. Demand in the UAE in Q4 fell 20% y-o-y, but jumped 80% q-o-q thanks to a return of some degree of tourist demand and decent festival buying as the gold price dropped. Saudi Arabia saw the steepest y-o-y decline in Q4 (-26%), due to the continued impact of VAT being levied on gold jewellery. 

The West

Gold jewellery demand in the US totalled 118.2t for the full year, 10% lower than 2019. The decline was, unsurprisingly, driven by damage to income and sentiment from COVID-19. Fourth quarter demand of 48.7t was relatively robust, down just 1% y-o-y due to the release of some pent-up demand from earlier quarters and spending being diverted from travel and dining out. However, the quarterly uplift from Q3 (+73%) was in line with average Q3-Q4 growth over the previous five years, so does not represent an unusually strong recovery. 

A review of jewellery in value terms reveals a more positive picture for the US in Q4, with high gold prices helping demand jump to a quarterly record of US$2.9bn.

It should be noted that US demand figures could be subject to greater than normal revisions going forward, due to varying levels of uncertainty in the data from different sources amid COVID-19 disruption.

Having averaged 75t over the prior eight years, gold jewellery demand in Europe dropped 21% to 56.7t in 2020 amid the chaos wrought by COVID-19. The cancellation of weddings, naming ceremonies such as christenings, and similar events had a material impact. 

Other Asia

Annual gold demand among the smaller markets in Asia was, without exception, well below 2019 levels. Q-o-q recoveries were universal across the region in Q3 and Q4, but were insufficient in magnitude to reverse H1 weakness. 

Thailand and Indonesia posted the steepest losses, with annual demand only around half that of 2019 levels. High local gold prices – which encouraged Thai consumers in particular to sell back their existing gold – together with the economic impact of COVID-19 explained the drop. Japan and South Korea saw the smallest y-o-y declines, of 19% and 16% respectively. Countries across the region were on high alert for a possible second wave of infections – a further burden on consumer sentiment already weighed down by widespread economic slowdown and high gold prices.