30 July, 2024
| Tonnes | Q2'23 | Q2'24 | Year-on-year % change |
|
| World total | 479.4 | 390.6 |
|
-19 |
| India | 128.6 | 106.5 |
|
-17 |
| China, P.R.: Mainland | 132.1 | 86.3 |
|
-35 |
Source: Metals Focus, World Gold Council
During an extraordinary quarter in which the gold price set a series of successive record highs, jewellery demand responded – unsurprisingly – with a sharp drop: global jewellery consumption fell 19% y/y to 391t. This was the weakest second quarter since 2020, when jewellery demand felt the worst impact of the pandemic. For the first half year, global jewellery demand is looking at a 10% decline to 870t after a relatively resilient Q1 performance.
In value, Q2 jewellery demand measured US$29bn. That was 4% lower y/y as the sharp rise in the gold price did not quite compensate for the decline in volumes. H1 demand, in value terms, was 2% above H1 last year at US$61bn – and the highest H1 since 2013 when Q2 demand spiked to a record volume of 834t.
China’s gold jewellery demand totalled 86t in Q2, a 35% decline y/y. Having dropped 46% below the ten-year average, demand was the weakest for a Q2 since 2009 as the rising gold price and slowing economic growth weighed on consumer sentiment. The second quarter brought total gold jewellery demand in H1 to 271t, 17% weaker y/y and the lowest since H1 2020.
The surging gold price and decelerating domestic economic growth were the two major reasons for sluggish gold jewellery demand in H1. Having gained 10% in March, capping Q1 consumption, the local gold price continued to rise in April and May, reaching fresh record highs during Q2.1 Combined with a slowdown in China’s economy – both GDP and disposable income growth decelerated in the quarter – this created affordability constraints on consumers, which dented jewellery demand. This was reflected in disappointing sales during the five-day Labour Day holiday in May – traditionally a peak buying occasion
Housing market woes, relatively weak local equity market performance and the uncertain economic outlook contributed to the cautious consumer environment, which was reflected in the continued high levels of willingness to save. As a result, consumers dialled back on recreational and discretionary spending – a trend also identified in Mckinsey’s 2024 Chinese consumption research.
In such an environment, our regional jewellery market visits confirmed that the trend for light-weight products with affordable unit prices continued to gain traction. Sales of 24K hard pure products outperformed all other categories during the first half and, in general, smaller pieces with lower costs were welcomed by consumers, a trend we observed in our 2023 Chinese gold jewellery market insights.
As a result, the gold jewellery industry in China is facing major consolidation, particularly, after the rapid expansion of the retail network in recent years. Narrowing retail margins have encouraged many jewellers to promote higher-margin products with intricate designs and various gem inlays, in order to shore up profits. While these products perform relatively well at the high-end, the mass market is more focused on lower cost items.
Looking ahead, the second half of the year holds limited prospects for an uptick gold jewellery demand. While seasonal strength in Q4 should provide support, consumer sentiment is likely to remain fragile until clear signs of economic improvement emerge. And the price environment remains critical, with any further strength likely to keep demand subdued.
Record gold prices weighed heavily on Indian gold jewellery demand in Q2: it fell 17% y/y to 107t – the weakest second quarter since the COVID-stricken Q2 2021. H1 demand of 202t is the lowest since 2020. Despite the sharp decline in demand, the domestic economic environment remains healthy: GDP growth is forecast at 7% and increased sales of two-wheelers and FMCG seem to point towards recovery in the important rural sector.2
Although gold prices retreated in June from their May peak, they held above the psychologically significant threshold of Rs70,000/g and this kept demand subdued – as reflected in the persistent discount in the local price during the quarter. Along with the record gold price, several other factors contributed to the relatively weak Q2. The national elections from mid-April to early June proved disruptive to gold jewellery consumption, as did the severe heatwave that saw record temperatures in Delhi at the end of May.
The Akshaya Tritiya festival – considered one of the most important gold-buying occasions in India – prompted a resurgence in demand in mid-May. Anecdotal evidence suggests that demand exceeded expectations, with strong activity observed in both urban and rural areas. However, this boost was short-lived and demand tapered off fairly sharply.
Encouragingly, there have been few signs of distress selling of gold jewellery by Indian consumers. Recycling activity has been dominated by gold-for-gold exchange, rather than outright sales. More notably, there has been growth in gold loans using jewellery as collateral: such activity was reportedly up 30% y/y by the end of May.3
In more recent developments, the government’s 2024-25 budget (presented on 23 July) slashed the import duty on gold and other metals. Finance Minister Nirmala Sitharaman announced a cut in total import duty on gold bars from 15% to just 6%, and on gold dorè from 14.35% to 5.35%. The change takes effect from 24 July and is likely to prompt a revival in gold jewellery demand in Q3 as the lower price of imported gold feeds through to consumers at the retail level before seasonal festive buying begins.
A healthy monsoon so far should add to the positive momentum in domestic economic growth and further support demand in Q3. However, any further sharp rises in the gold price would likely mitigate the positive effects of the cut in customs duty – at least temporarily – until consumers become accustomed to new, higher levels.
Turkish jewellery demand registered its first y/y decline since Q1 2022: down 19% to 8t. The q/q decline was steeper still at 26%, although this is largely due to the base effect of a very strong Q1. The combined total for H1 is largely unchanged at 20t, with a value of TL43bn – a half-yearly record and 76% higher y/y.
The fall in demand was almost entirely due to the gold prices rising to new highs, although given that this high-carat market is also driven by investment motives, reactions to monetary policy developments – which pushed up interest rates and enhanced the appeal of savings accounts – also played their part.
Declines in Q2 jewellery demand were almost universal across the Middle East: regional demand dropped below 40t for the first time since Q2’21. Egypt was the sole exception: demand held firm (+2%) as the IMF bailout package buoyed sentiment, helping to generate a notable boost to demand at Ed-ul-Adah. Weak economic activity and stagnant real wages in Iran contributed to a 6% y/y decline in jewellery demand. And demand in the UAE posted its sixth consecutive y/y decline (-13%) thanks to high gold prices and the interruption to consumption caused by the heavy storms that hit the country in April.
Gold jewellery demand in the US weakened by 5% y/y to 33t, the ninth consecutive y/y decline as demand continues its trend of normalisation. Demand was bumped up notably in 2021/22 as consumers under lockdown restrictions and federal income support directed some of their excess savings to gold jewellery. As those excess savings dwindled and spending on travel and entertainment resumed, gold jewellery demand began to taper. That downtrend accelerated during Q2, thanks to deteriorating consumer confidence and an environment of record gold prices and continued cost of living pressures.
In a longer-term context, however, demand remains healthy: in the five years prior to the pandemic average Q2 jewellery demand in the US was 27t.
European markets also witnessed a weaker Q2: regional demand was 3% lower at 15t. The chief driver of the fall is said to be poor consumer sentiment and economic gloom (especially in Germany). Sales in both France and the UK were reportedly impacted in June by uncertainty linked to elections. Some markets also saw weak demand for engagement rings and/or a price-led shift to platinum.
Vietnam and Indonesia saw weaker demand in Q2; Thailand bucked the trend despite the record gold price environment.
Demand in Thailand rebounded in Q2, rising 12% y/y to 2t as consumers reacted to the price correction mid-quarter, using it as an opportunity to buy before the price resumed its uptrend. Investment motives may also have helped to support demand for gold jewellery in this typically high-carat market. H1 demand was flat compared with H1’23 at 4t.
Vietnamese gold jewellery demand in Q2 fell 15% y/y to just 3t. The decline was primarily price-driven, although slowing GDP growth also impacted sentiment. H1 demand sank to just above 7t, the lowest H1 since 2020.
High gold prices, amid persistent broader inflation, drove the 8% y/y decline in Indonesian demand in Q2. The trend for lower-carat jewellery continued, given affordability constraints imposed by the high gold price. H1 demand of 10t was 10% down on H1 2023.
Gold jewellery demand in Japan declined 5% y/y to just under 4t. Thanks to a strong Q1, total H1 demand held firm at 7t. Quasi-investment demand for plain gold Kihei chains remained strong (in line with healthy bar and coin demand) while other areas of the market suffered thanks to the record gold price environment.
High prices drove the 8% y/y decline in South Korean gold jewellery demand to 3t. This more than reversed the increase in Q1 and saw the market resume its long-term downtrend from the highs seen in 2016.
Gold jewellery demand in Australia slumped 32% to 2t. The environment remained challenging, with consumers feeling the pinch from tighter financial conditions.
