WGC’s Q2 figures show demand was less than half the five-year average.
The World Gold Council (WGC) has released its gold demand trends for Q2, revealing UK Q2 gold jewellery demand to be down 8% year-on-year.
This decline, said to be down to the economic climate in UK, translated into a 2% increase in value terms to £131.4 million.
Overall, global demand totalled 990 tonnes in Q2 – 7% below last year’s demand levels – with weaker demand from the jewellery industry, investment and technology sectors.
The supply of gold declined 6% year-on-year, mainly due to lower levels of recycling. The gold price averaged US$1,609.49 per oz (£1,028 per oz) during the quarter, 7% above the average Q2 2011 price.
With a view to H1 totals in 2012, gold demand of 2,090.8 tonnes was 5% down on the last year and 14% above the five-year H1 average of 1,828.7 tonnes.
India and China continued to dominate global consumer demand, accounting for a combined 45% of total second
quarter jewellery, and bar and coin demand.
In China, economic slowdown and the lack of clear direction in the gold price were the main factors behind the year-on-year decline in domestic gold demand.
Although weaker when compared with year-earlier levels, second quarter investment demand remained within the higher range that has been in place since Q3 2008. Broadly, the numbers show that gold continues to be used for capital preservation purposes and as a source of liquidity.
At 418.3 tonnes, demand from the jewellery sector accounted for 42% of global gold demand during the second quarter. The 15% year-on-year decline in the sector was largely due to a sharp fall in Indian jewellery demand, as rupee gold prices reached record levels in excess of Rs30,000 (£3,425) for 10g.
Demand for gold jewellery for the first half of 2012 totalled 906.4 tonnes, 13% down on H1 2011. At US$21.6 billion (£13.7 bn), the value of global jewellery demand was 9% below year-earlier levels. Compared with the five-year quarterly average value of US$18.5 billion (£11.8bn) , the second quarter was up 17%.
In the UK Q2 gold jewellery was said to be negatively impacted by economic factors. An 8% year-on-year decline in UK gold jewellery demand translated into a 2% increase in value terms to £131.4 million. On a historical basis, demand was less than half the five-year average of 8.2 tonnes.
The high-end of the UK market has proved the most resilient, with assay data showing that the weight of 24 carat items being hallmarked was up strongly during the second quarter – owing to the increase in Asian jewellers having items hallmarked after a crackdown by Trading Standards – despite a reduction in the absolute number of articles being hallmarked.
The data shows a strong increase in the number of 9 carat items hallmarked as key price points were met by items containing less gold. In the light of these established trends and the unconstructive consumer environment, the prospects for both markets are for a continuation of the long-term decline.
Following reports that the appetite for luxury goods in China is waning, its jewellery demand was typically weaker in Q2, dropping by 9% from year-earlier levels to 93.8 tonnes. The comparison with the historical five-year average of 103.1 tonnes shows a similar 9% decline.
Chinese consumers were discouraged by the slowing of GDP growth during the second quarter as well as by the lack of a clear trend in the gold price. Chinese consumers prefer to buy into an established trend in the gold price and the period of consolidation during the second quarter therefore acted as a deterrent to gold jewellery demand.
Demand for wedding jewellery was resilient in China, aided by 2012 being the auspicious Year of the Dragon, and jewellery demand as a whole was concentrated in the 24-carat gold segment, while K-gold (18K) jewellery bore the brunt of the year-on-year decline in demand.
The rate of decline in jewellery demand in the US slowed in Q2, with demand down 7% year-on-year compared with a 9% decline in Q1. Demand in value terms was virtually unchanged, 1% lower at US$1 billion (£637bn). The decline was said to be “partially a result of the weak domestic economic situation combined with international economic unease”.
A continuation of the high unemployment rate and overall economic distress cut into non-essential purchases during the second quarter. Although demand among higher-end consumers was slightly more robust, there were emerging concerns from this segment regarding the uncertainty around tax policy and regulations brought about by the upcoming elections.
The signs are, however, cautiously optimistic for the remainder of the year. The period of consolidation in the gold price in the second quarter saw consumers who had been discouraged by previous price volatility returning to the market.
With a view to gold bars and coin demand, Europe exhibited a 15% year-on-year increase in Q2, “confirming the strength of conviction” among investors in gold’s capital preservation properties.
Demand across the region totalled 77.6 tonnes, 19% higher than the five-year quarterly average of 65.2 tonnes. The value of demand at €3.1 billion (£1.97bn) was 37% above year-earlier levels. Following a certain amount of profit-taking in the first quarter, investors approached the market with renewed vigour, boosted by more opportune price entry points and the uncertainty generated by the ongoing eurozone crisis.
Germany was the second-strongest market after Japan in absolute growth terms, delivering a year-on-year volume increase of 11.6 tonnes, which translates to growth of 51%.