Gold Demand Trends Q1 2019

Global demand for gold jewellery inched up to 530.3t in Q1, worth US$22.2bn. India was the primary driver of growth: demand of 125.4t was the highest Q1 since 2015. Although demand in the US continued to expand, the pace of growth slowed as the prolonged government shutdown hit demand in January. The Middle East region saw a modest y-o-y recovery, although this is largely because demand in Q1 2018 was hit by the introduction of VAT in the UAE and Saudi Arabia. Iran was a notable exception, falling by 10%.

India 

Wedding purchases and lower prices lifted Indian gold jewellery demand to 125.4t (+5% y-o-y). The first half of the quarter was subdued; the month-long inauspicious period of Kharmas/Malmas ended in mid-January and was followed by a sharp rise in the local gold price, hitting Rs33,730/10g by the third week of February.¹ Prices then swiftly retreated, falling to Rs32,000/10g by the first week of March, and consumers took advantage of the correction, rushing to make wedding-related purchases and pushing the local price to a premium. 

A higher number of auspicious days boosted wedding-related demand. There were 21 auspicious wedding days in the Hindu calendar during Q1 2019 – three times that of Q1 2018. This was a crucial factor behind the growth in India’s jewellery demand.

So far, the market has been largely unaffected by the restrictions on cash movement that came into force mid-March. The code of conduct for elections restricts anyone from carrying cash worth more than Rs50,000 (approx. US$700) without also carrying documentation proving the legal source of, and end use for, that cash. But this could act as something of a headwind for demand throughout the second quarter, given the timing of the election - 11 April to 19 May. 

Retail promotions also attracted consumers. Organised retailers, conscious that gold jewellery faces growing competition from electronics, designer brands and vacations, have launched promotional schemes to attract consumers. Most common were campaigns offering discounts on jewellery-making charges, but some retailers also began actively promoting low carat (14c), lightweight jewellery, specifically targeting younger consumers. Alongside these promotional efforts, jewellery demand will likely be boosted in Q2, by traditional wedding season buying, the Akshaya Tritiya festival on 7 May and higher crop prices than last year.²

China

Chinese consumers were relatively conservative in their jewellery buying in Q1. Demand softened by 2% to 184.1t, despite the traditional boost from the Chinese New Year holiday. The market faced a few headwinds: gold prices were relatively volatile during Q1 and consumers remained wary of the slowdown in the domestic economy, particularly against the background of the international trade conflict. 

But regardless of the lack of growth, China’s jewellery market continued to innovate and develop. Hot on the heels of antique crafted gold and 3D hard gold, which have both gained a solid foothold in the market over the last 12-18 months, a new category of gold was introduced to compete with 22k. ‘5G’ or ‘HD’ gold offers the purity of 24k gold combined with the rigidity of 3D hard gold and the fashionable designs of 18k. This will be a segment of the market to watch over the coming year. 

Middle East & Turkey

Jewellery markets in the Middle East and Turkey experienced mixed fortunes in Q1. While demand in both Turkey and Iran was hit by sliding currencies, Egypt registered decent gains. Although the UAE and Saudi Arabia saw growth, this was largely because Q1 2018 was very weak due to the introduction of VAT.

Jewellery demand in Turkey fell 12% to 8.9t as the lira slid further against the US dollar, pushing local gold prices steadily higher. Consumers faced continued economic hardship: unemployment rose to 15% and rising inflation hit disposable incomes. Although the lira-denominated gold price remained below the record spike from August 2018, it continued the steady grind higher that began in late November.³ Against this backdrop a fall in jewellery demand was entirely to be expected. On the other hand, bar and coin demand jumped in response to the increasingly difficult economic and geo political environment.

Iran faced similar challenges. The country remained crippled by sanctions and the currency slid by 21% against the US dollar during Q1. Demand consequently fell 10% y-o-y to 9.6t – the lowest Q1 for four years. The q-o-q comparison was relatively positive (+27%) as demand recovered from the severe weakness of Q2-Q4 2018. But we believe the market will remain under pressure over the remainder of 2019, with continued y-o-y declines coming through. 

Firmer Q1 jewellery demand across the rest of the region was more a function of 2018 weakness than any real strength. Demand in the UAE and Saudi Arabia made y-o-y gains of 6% and 10% respectively. But the comparison is with a weak Q1 2018 – a time when demand slumped as a new VAT was introduced. The VAT refund offered to tourists in the UAE has only seen limited take-up: in particular, Indian tourists are reluctant to claim in case their information finds its way to the Indian tax authorities.  And Saudi Arabia continues to sag under the weight of its localisation drive; the inexperienced, relatively unskilled local workforce is struggling to fill the void left by expat workers.

The story in Egypt was one of more genuine, structural improvement. Demand saw a fifth consecutive quarter of y‑o‑y growth, rising to 6.9t. Continued appreciation in the local currency helped drive a sharp drop in the local gold price and this fuelled demand during the quarter. The jewellery trade got a boost after cost-savvy manufacturers shifted production to Egypt in an effort to slash labour costs.

The West

The US jewellery market saw marginal growth: demand reached 24t in Q1. Although this was the ninth consecutive quarter of y-o-y growth in the third largest gold jewellery market, the pace of expansion slowed notably. The prolonged government shutdown hit demand in January, as demonstrated by a drop in gold jewellery imports that month. 

But a few bright spots remain. The higher-end jewellery segment remains robust. And independent retailers in more affluent and/or Hispanic-dominated areas reported a strong quarter. Lower-tier, mass market retailers however, were less resilient although the challenge to gold from branded silver and costume jewellery is fading, which bodes well for demand. One area of concern is the wedding market, where platinum and base metals are encroaching on gold’s position as the metal of choice for men’s wedding bands.

European jewellery demand slipped 1% to 12.7t – on a par with Q1 2017. The regional weakness was chiefly due to losses in the UK and France, where demand was hit by the fragile economic outlook and political uncertainty. 
 

Other Asia

The smaller markets in the Asian region were a mixed bag in Q1. Performance ranged across the spectrum from weak (South Korea and Singapore), to stable/firm (Malaysia, Japan and Thailand) and strong (Vietnam and Indonesia). 

Weakness was most pronounced in South Korea where demand fell 19% to 5.0t, the lowest Q1 since 2009. The market was undermined by its exposure to the global trade cycle and the US/China trade dispute. Total Q1 exports declined for the first time in more than two years, with unemployment consequently rising to a nine-year high.

The Q1 picture in Vietnam was contrastingly positive: jewellery demand grew 6% y-o-y to 5.4t, the strongest quarter for jewellery demand since Q1 2011. A healthy and sustained rate of economic growth has had a positive income effect, supporting jewellery demand during the Vietnamese New Year (Tet holiday) – a traditional gold-buying occasion.

Jewellery consumers in Japan seemed to be attracted to gold’s investment properties. Retailers reported that ‘kihei’ chains – plain, heavy gold chains that serve as quasi-investment products – were popular. This is interesting as it suggests a disconnect between gold jewellery buyers wanting to benefit from gold’s investment benefits and gold retail investors, who mostly took profits on their investment holdings in Q1.