Gold Demand Trends Q1 2021

Jewellery demand continued to recover in Q1 but has some way to go to return to pre-pandemic levels. Having been all but decimated by the pandemic between Q1 and Q3 2020, gold jewellery demand recovered towards the end of last year and into Q1 2021. But longer-term comparisons show that it remains relatively subdued, falling short of the quarterly average over the previous five years of 505.9t. And it remains well below average first quarter levels too. Removing the anomalous Q1 2020 total from the comparison, first quarter demand between 2015 and 2019 averaged 540t. 

That being said, the usual seasonal Q1 dip was more muted than normal. Q1 is traditionally a seasonally weak quarter for gold jewellery demand, and usually falls from Q4. The quarterly percentage drop in Q1 2021 – of just 7% – was far smaller than we have seen in recent years,² as consumers continued to make up for lost opportunities in 2020 and benefit from lower gold prices. 

Jewellery demand in value terms was well above average levels in recent years. The value of jewellery spending reached US$27.5bn – the highest first quarter since Q1 2013 and 25% above the five-year quarterly average of US$22.1bn. 

China

Jewellery demand in China recovered to 191.1t – its highest quarterly total since 2015. Although the 212% y-o-y growth rate was largely due to the comparison with an extremely weak Q1 2020, demand was 4% higher than Q1 2019.

Three main drivers underpinned this strong quarterly result: improving domestic economic conditions; lower gold prices; and sales booms sparked by Chinese New Year (CNY), Valentine’s Day and International Women’s Day.

China’s economy continued to improve, with GDP growth reaching 18.3% in Q1 – the highest on record. Local residents saw their disposable income increase by 13.7% y-o-y, and this buoyant economic picture supported gold jewellery demand. Additionally, the first quarter decline of 8.5% in Au9999 – a proxy of the local gold price – made gold jewellery more affordable for Chinese consumers. 

Festival sales were another key factor supporting China’s gold jewellery demand in Q1. January saw the traditional hoarding of gold products ahead of the CNY holiday.³ The policy to encourage residents of major cities to ‘stay put’ for the CNY holiday freed up travel budgets for discretionary spending, supporting gold demand. And anecdotal reports suggest sales were further boosted by the confluence of the CNY holiday and Valentine’s day, as well as by purchasing to celebrate International Women’s Day (8 March).  

Strong demand was reflected in a strong rise in SGE withdrawals, driven in part by gold retailers feverishly replenishing their stocks after the CNY buying binge (as well as the low base from 2020). 

Heritage gold jewellery products continued to dominate the market in the first quarter of 2021. While mass-appeal and relatively plain items maintain their relevance in lower-tier cities, heritage gold products continue to gain market share and feature more heavily in retailer inventories. As mentioned in our previous Gold Demand Trends report, these products have attracted many high-end consumers. And recently, they have become increasingly popular among young consumers, who have embraced the rise of ‘Guochao’ – the exploding trend for hip domestic Chinese brands. Not only is this a reflection of the improving Chinese economy and growing consumer income, but it also shows that Chinese youngsters are strengthening their emotional connection to gold – a factor identified by consumer research as having been a key barrier discouraging young Chinese consumers. 
 
Looking ahead, Q2 in China is traditionally a low season for gold jewellery demand, partly as consumer preference veers towards lighter gold jewellery pieces during the hot summer months. We expect this trend to repeat itself in 2021, but also expect that the longer International Labour Day holiday in May,⁴ along with weddings being rescheduled from 2020, are likely to provide some support during the second quarter. 

India 

Substantial wedding purchases, encouraged by declining gold prices, and improving consumer sentiment buoyed by a pick-up in economic activity, supported Indian gold jewellery demand in Q1. Demand was 39% higher y-o-y at 102.5t, although it fell short of the 125.4t from Q1 2019. The value of jewellery demand in Q1 grew 58% y-o-y to a first quarter record of Rs431bn. Robust retail demand pushed the local market gold price premium to a 51-month high of US$7/oz in early March.

The move lower in the US dollar gold price during Q1 was magnified in India, due to a cut in import duty on gold. Consequently, the average local Q1 gold price of Rs47,131/10gm, although 14% higher y-o-y, was 6% lower q-o-q and 16% lower than the August 2020 all-time high of ~Rs56,000/10gm. The move below the key psychological level of ~Rs50,000/10gm was instrumental in spurring bargain buying and releasing pent-up demand. 

Wedding-related buying supported jewellery demand through Q1, boosted by a degree of pent-up demand from weddings postponed from 2020. Organised retailers ran offers and discounts on making charges to lure consumers towards wedding purchases.⁵ In its Q1 2021 quarterly update, leading jewellery retailer, Titan, stated that: “Wedding jewellery has been a strong growth driver for the year and its share in overall jewellery revenue has increased meaningfully, compared to last year.” 

The outlook for the coming quarter is, however, cautious. As new lockdowns are imposed in various areas of the nation in response to rising COVID-19 cases, consumer confidence has dipped. This is likely to impact wedding demand in Q2, although the effect may be tempered by: a) digital and omni-channel retail strategies being developed over the last year and b) some consumers having taken advantage of lower Q1 prices by making early purchases of gold for weddings scheduled in Q2 2021. 

Middle East & Turkey

Jewellery demand in Turkey was 5% higher y-o-y at 9t. However, in comparison to a more ‘normal’ year – Q1 2019 – it was down 6%. Local gold prices dropped throughout January and February, before rebounding sharply with the sacking of the Turkish central bank governor in mid-March, choking off the recovery in jewellery demand. The re-introduction of Saturday lockdowns, as COVID-19 cases spiked, also stifled the recovery in the closing days of the quarter. 

First quarter jewellery demand in the Middle East presented a mixed picture. Despite a third quarter of q-o-q growth – helped by lower gold prices – demand over the whole region was 5% lower y-o-y as the impact of the pandemic continued to bite. Y-o-y growth in Saudi Arabia, Egypt and Kuwait was insufficient to offset weakness elsewhere, particularly as tourism in the region remains limited amid global travel restrictions.

The West

Gold jewellery demand in the US grew 6% y-o-y to 24.3t – the strongest Q1 since 2009. In value terms this equates to a 21% y-o-y increase to US$1.4bn. With consumer sentiment boosted by the vaccine rollout programme and Federal income support measures, the impact on gold demand was evident. The sector also benefited from a continued diversion of funds that would previously have been spent on travel, restaurant meals, theatre trips, etc. The y-o-y growth rate is all the more notable given that US lockdown restrictions were not widely introduced until late March 2020, meaning that Q1 demand last year was not greatly affected. We would expect the y-o-y comparison in Q2 to more clearly reflect the base-effect impact of the pandemic.

The lingering effects of COVID-19 on consumer sentiment and logistics took their toll on European gold jewellery demand in Q1 – particularly in the UK. Demand across the region fell 8% y-o-y to 9.8t, with modest growth in France (+4%) and Italy (0.5%) outweighed by declines in Germany (-8%) and the UK (-30%).

Other Asia

The smaller East Asian markets saw healthy y-o-y gains, with the exception of modest losses in Japan. Growth in demand was in large part due to a combination of falling gold prices during Q1 and the base effect of a weak Q1 2020, which had been hit by the beginnings of the pandemic and early lockdowns.