UK gold demand declines 21% in Q2

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Rest of world postivie as consumer appetite is boosted by price drop.

UK demand for gold jewellery was down 21% in the second quarter, according to the latest gold demand trends released by the World Gold Council (WGC) today.

These latest figures show a continued decline for gold demand in the UK, while the rest of the world’s gold demand has been boosted by consumers coming out in force to purchase gold – pushing demand to near-record levels.

UK consumer demand for gold totalled three tonnes in Q2, down 21% compared to Q2 2012, when demand totalled 3.8 tonnes. In terms of value, Q2 consumer demand in the UK totalled US$135 million (£85.6m), down 31% compared to Q2 2012. The average gold price in the UK in Q2 was £921 per ounce, down 9% compared to Q2 2012’s figure of £1,016.

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With a view to the four quarters ending Q2 2013, total gold demand in tonnes in the UK was down 6%, while the value of gold demand was down 8% to a total US$1.08 billion (£693m).

Western European markets continue to be affected by negative economic conditions which, despite the lower gold price recorded in April, crushed the positive impact of lower prices. According to the WGC 9ct gold has been one of the worst hit finenesses in the UK, losing out to sales of high-volume fashion and branded jewellery.

UK hallmarking statistics, however, reveal a relatively healthy quarter for the high-end 22ct gold jewellery, possibly due to increased demand from the Asian jewellery market in the UK, as well as the hallmarking drive influenced by trading standards.

On a global scale, Q2 gold demand trends showed a continuation of the strong recovery in consumer demand for jewellery with India and China continuing to play a prominent role as focus shifts from Western to Eastern markets.

India remained the largest market for gold, with consumer demand totalling 188.0 tonnes, boasting a value of $8.55 billion (£5.4bn), In China demand totalled 152.8 tonnes in Q2 2013, with a value worth $7.6 billion (£4.8bn).

Gold Jewellery Demand
According to the WGC figures gold jewellery demand in Q2 was mostly impacted by the drop in gold price reported in April.

While jewellery demand can be affected by factors such as economic growth, consumer sentiment and disposable income, the drop in gold price resulted in a "buying frenzy" that the WGC report says caused a vast rise in regional premiums on gold, as supply chain bottlenecks caused delays in meeting demand.

The upward trend was widespread across global markets but the most notable year-on-year improvements occurred in India, China, the Middle East and smaller Asian countries.

According to the WGC’s managing director of jewellery, David Lamb, the focus of these markets was investment in higher carat jewellery as gold jewellery transforms from mass market fodder to a premium product that has long-term intrinsic value.

However, within Europe and the UK this attitude is yet to translate and as a result Europe was the only region not to see an improvement in jewellery demand in Q2.

The US delivered a second consecutive quarter of growth, with lower jewellery price points well received. Of note was that US demand was healthiest at the higher end of the market, with evidence of a slowdown in lower carat items in the middle segment.

US gold jewellery demand was amplified by growth at the wholesale level, with lower prices presenting a favourable opportunity to embark on early stock building in preparation for the seasonally strong fourth-quarter.

Gold Jewellery Volumes
According to the WGC’s report, quarterly jewellery volume rose to its highest level for five years as the sharp drop in prices met with a very positive reception across the globe. Despite the lower prices, demand in value terms was the fourth highest on record.

India and China generated the largest volume increase – almost 120 tonnes of the 155 tonnes increase in demand respectively. In China, continued expansion of the domestic jewellery retail network and growth in production capacity has positive longer-term implications for jewellery demand, but the market faces possible shorter-term headwinds from a more material economic slowdown.

Hong Kong generated the strongest percentage growth in demand, surging to a record 12.1 tonnes as jewellery retailers were swarmed and stock was exhausted with notable time delays in replenishing showrooms. Domestic consumers focused their attention on wedding jewellery, taking advantage of the favourable price environment.

Gold Supply
There was 62.4 tonne decrease in the supply of gold during the second quarter, almost solely due to reduced quantities of recycling coming onto the market.

A sharp fall in the supply of recycling was heavily influenced by well-informed consumers are able to respond at speed to changes in the gold price. Recycling in developed markets dropped 25% compared with Q2 2012 and, given price expectations among consumers in China and India, a resurgence in supply would likely require a significant recovery in the price.

The 672.1 tonnes of gold recycling supply in the first six months of the year was the lowest first-half total since 2007. The fact that this element has subsided to pre-economic crisis levels is a function not just of lower prices but of a lower need for distress selling – selling gold for cash – among consumers in developed markets, particularly the US.

Recycling has generated, on average, 40% of total supply over the last five years. Supply from this sector, particularly in the developing markets, is highly price sensitive; as such, the immediate and notable contraction in the second quarter – to 30% of total supply – was to be expected.

Gold demand tonnage surged to 856.3 tonnes in Q2, with a value of US$39 billion (£25bn), enough to outweigh the decline in the average gold price; demand in value terms was up 20%.

To read the World Gold Council’s Q2 2013 gold demand trends report in full, click here.

 

 

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