Latest WGC demand trends show rest of world jewellery demand is up.
The Q3 Gold Demand Trends report from the World Gold Council (WGC) has revealed UK gold demand continued to decline in the third quarter, with a 14% fall in terms of tonnage.
The report, released today, outlines that European markets continued to be the exception to the more positive global picture for gold jewellery demand, with both the UK and Italy posting year-on-year declines as economic concerns continued to weigh on sentiment.
Despite this decline in demand, UK hallmarking figures have shown growth in the higher carat segments for gold, together with an increase in the weight of individual pieces being hallmarked at the four UK Assay Offices.
In Q3, total UK demand for gold slipped 14% to 3.2 tonnes, compared to the 3.7 tonnes recorded in Q3 2012. The value of UK gold demand for the quarter was US$134 million (£83m), down 31% compared to the same period last year.
For the 12 months to the end of Q3 2013, UK gold demand totalled 20.2 tonnes, with a value of US$1.03 billion (£643m), down 10% year-on-year.
Global Gold Demand
Global Q3 gold jewellery demand hit 486.7 tonnes, the highest third quarter since 2010 and 20% above the corresponding period in 2012.
According to the World Gold Council’s report, the fall in gold price in Q2, notable in April and June, caused a 15% year-on-year decline in the value measure of jewellery demand in Q3.
In all, global third quarter demand was worth US$20.8 billion (£12.9bn), the lowest quarterly value since the third quarter of 2010. However, on a year-to-date basis, jewellery demand in the first three quarter of 2013 is valued at US$77.3 billion (£48bn) compared with US$72.9 billion (£45.3bn) in the first three quarters of 2012.
According to the report, despite the continued decline in UK and European demand for gold jewellery, an almost universal phenomenon in Q3 was the increasing popularity of higher carat jewellery.
Across Asia, the Middle East and in the US, higher carat jewellery was noted as an area of particular growth as the increased investment properties associated with gold of higher purity came to the fore. The WGC has also recorded jewellery retailers in a number of markets were increasingly stocking investment products such small bars and coins, which it says provides further evidence of the blurring of the jewellery/investment distinction.
With a view to rest of world demand, consumers in China generated 163.7 tonnes of jewellery demand in the third quarter, making it the largest single jewellery market by some margin.
The continued expansion of the retail network in China confirms that the trade sees prospects for growth. Gold jewellery with a fineness of 24ct gained market share in China, as did – more notably – ‘four nines’ gold, that is gold jewellery of 99.99% purity, compared with the typical 24t purity of 99.95%. The former is unique to China and has proved to be most popular with consumers in lower tier markets and rural areas, again reflecting the investment qualities offered by such jewellery.
There was another quarter of exceptional growth in Hong Kong, with gold jewellery demand up 28% year-on-year to 7.5 tonnes. A rise in the number of tourists visiting from the mainland, together with lower average prices, ensured another robust quarter for Hong Kong jewellery demand.
India witnessed a relatively subdued quarter as the government’s gold import restrictions took effect. As a result, demand drop by 23% year-on-year to 104.7 tonnes. Nonetheless, demand for the year to date in India totals 452.2 tonnes, 13% higher year-on-year, and only 18% below the full-year total for 2012.
Demand for gold jewellery among Indian consumers remains strong, but reduced supply has prevented this demand from being fully realised, despite gold entering the country through unofficial means.
The third quarter also bought growth across the Middle Eastern region, with Egypt being the unsurprising exception. Although the earlier timing of Ramadan this year reduced demand during July, lower prices relative to last year resulted in robust year-on-year comparisons in Q3 demand for the UAE, Saudi Arabia and other Gulf states.
Heavy promotion by big brand names resulted in major retailers performing better than smaller retailers, while the emphasis on 22ct gold at the expense of 21ct and 18ct diamond-set jewellery suggests demand was stronger among domestic consumers compared to western tourists. Demand for jewellery in Egypt shrank notably amid the volatile political atmosphere.
Gold by Value
In value terms, Q3 gold demand was down 37% on the previous year at US$37 billion (£23bn) – the lowest quarterly value since Q1 2010. The gold price increased throughout the quarter, as outflows from ETFs slowed and the incoming tide of Asian physical demand stemmed the Q2 price decline.
Nevertheless, the average price for the Q3 period was significantly below the year-earlier average, which contributed heavily to the drop in the value measure of gold.
According to the WGC, gold supplied to the market during the third quarter totalled 1,145.5 tonnes, 3% below the same period in 2012. The year-on-year contraction is largely explained by lower levels of recycling, outweighing modest growth in mine supply. Year-to-date the supply of gold is 4% lower than the same period of 2012 at 3,196 tonnes. The primary driver is a contraction in the supply of gold from recycling almost to pre-crisis levels.
Recycling underwent a sixth consecutive quarter of shrinkage when measured year-on-year; for the year-to-date period the supply of gold from this activity is 13% – or 158 tonnes – below the year-earlier period. The contribution from industrialised markets fell by almost 13% as supplies of old gold became increasingly scarce, and lower average prices failed to attract sellers.
In the US, recycling is seemingly in terminal decline, having shrunk significantly in recent quarters. Conditions there are less conducive to recycling as economic indicators improve and gold prices remain below their previous peaks.
The WGC says two key themes have emerged during 2013: the rising level of consumer demand for gold off-setting outflows from ETFs, and the geographical flow of gold from western to eastern markets.
In addition, a key development of the third quarter was a quarter-on-quarter decline in demand, the first Q2-Q3 drop since 2007. Two key factors contributed to this decline, the primary explanation being the April and June price drops. The demand response to the sharp move lower in the gold price during the second quarter was so strong that it resulted in a degree of "cannibalisation" of third quarter demand as gold purchases were brought forward to Q2.