Hit by high gold prices, annual jewellery demand fell to a seven-year low of 2,041.6t in 2016.
The World Gold Council reports in its Gold Demand Trend Full Year 2016 that a 5% drop in Q4 set the set the seal on a difficult year for gold jewellery. In the end, full year demand was down by 15%.
Most markets saw losses, with just one of two exceptions. India and China – the two largest markets – together accounted for almost 80% of the 347.0t decline in full year demand. India saw the biggest decline as the market faced challenges on several fronts.
In the West, the mild upward trend in US jewellery consumption came to an end in 2016. Demand slipped 1% to 118.3t on weakness in the second half of the year, while US consumers were more tentative in their demand for gold jewellery in the closing months of 2016. The US did however see the usual seasonal spike in Q4 gold demand, up 69% from Q3 on holiday season buying. But this was disrupted by the November Presidential election, which gripped the nation and created an uncertain environment for many consumers.
Q4 and full-year demand in Europe followed similar patterns. France and the UK underperformed broad stability elsewhere. In the UK, the tentative gains made since 2012 came to a halt. Post-Brexit uncertainty and pessimism affected consumers with Q4 demand falling by 5% to 12.2t, leading to a 3% drop in annual demand to 25.2t.
Elsewhere the annual report reveals the global gold demand rose by 2% in 2016 to reach 4,309 tonnes (t), the highest level since 2013. This was largely driven by inflows into gold-backed Exchange Traded Funds (ETFs) of 532t, the second-highest year on record, as investors responded to concerns over future monetary policy, geopolitical uncertainty and negative interest rates.
Continued global economic and political uncertainty, most notably Brexit, the US election and currency weakness in China, helped to boost overall investment demand by 70%, to a four-year high of 1,561t. The price dip in November led to a strong recovery in the bar and coin market in the final quarter of 2016, although this didn’t offset weak demand in the first three quarters; annual demand reached 1,029t, down 2% year-on-year.
Alistair Hewitt, head of market intelligence at the World Gold Council, comments: “2016 saw an unprecedented degree of political upheaval, which underpinned huge institutional investor flows into gold. Retail investors – having been subdued for most of the year – responded quickly to the price fall in Q4, a fact reflected by a surge in demand in the physical market. With an equally uncertain political and economic environment likely in 2017, we expect investment demand to remain buoyant.”