The World Gold Council has reported a 14% fall in global jewellery demand to 444t in 2016, compared to 514t in the same period last year.
According to the Q2 2016 Gold Demand Trends report, the high price level has taken its toll on the jewellery sector.
Jewellery consumers have faced a tough environment in 2016 so far. Steep price rises have done little to attract demand in the more price sensitive markets. In particular, Indian consumers are notoriously wary of price instability and this year has proven to be no exception.
Elsewhere challenging geopolitical and economic conditions continue to hamper the Middle Eastern markets and China has battled with poor consumer sentiment, a sluggish economic environment and onerous hallmarking regulations.
Demand in the UK grew marginally to reach 8.2t in the first half, the strongest H1 since 2010 as this market continues to build on the strong base established in the wake of the long-term secular downtrend from 2001 to 2012. The rolling 4-quarter average has hovered around 26t since the end of 2014, indicating the stability in the market.
While there have been improvements in a few markets, most notably, the US and Iran, at the global level jewellery has suffered.
In volume terms, demand so far this year has lurked well below its five-year average – by around 20%.
The flip side to lower jewellery demand has been a rise in recycling activity. Recycling – selling gold jewellery for cash – is an important element of supply: in H1 it generated almost a third of the gold supplied to the market. It helps with the smooth functioning of the gold market and is responsive to a number of factors, one of the most important being the gold price.
Total supply for Q2 2016 saw an increase of 10% to 1,145t compared to 1,042t in the second quarter of 2015. The primary driver of this increase was recycling, which saw a significant rise of 23%, as consumers capitalised on the rising gold price, leading to first half recycled gold supply of 687t, 10% higher than the 626t seen in H1 2015.
The report also declares that the global gold demand reached 2,335 tonnes (t) in the first half of 2016 with investment reaching record H1 levels, 16% higher than the previous record in H1 2009.
Q2 2016 continued in the same vein as the first quarter this year with overall gold demand growing to 1,050t, up 15% from the Q2 2015 figure of 910t, boosted by considerable and consistent investment demand. Investment demand reached 448t as investors sought risk diversification and a safe store of value in the face of continued political, economic and social instability. Exchange traded funds (ETFs) had a stellar first half of the year at almost 580t due to the additional inflows in Q2 of 237t. Bar and coin demand was also up in a number of markets in Q2, including the US at 25t (up 101%), leading to H1 bar and coin investment of 485t, 4% higher than the first half last year.
Alistair Hewitt, head of market intelligence at the World Gold Council, comments: “The strength of this quarter’s demand means that the first half of 2016 has been the second highest for gold on record, weighing in at 2,335t. The global picture for gold is dominated by considerable and continued investment demand driven by the West as investors rebalance their investments in response to the ever-expanding pool of negative yielding government bonds and heightened political and economic uncertainty.
“The foundations for this demand are strong and diverse, drawing on a broad spectrum of investors accessing gold via a range of products, with gold-backed ETFs and bars and coins performing particularly strongly. But the global gold market is, and has always been, based on balance: so whilst investment is currently the largest component of demand, we see a gradual return for the jewellery market in the second half of 2016.”
The after-effects of the UK Brexit decision are likely to be reflected in Q3 data, given that the referendum itself came right at the end of the second quarter. The report predicts there effects are likely to be global.
In the seven days after the vote, the search index for the keyword “gold” compiled by China’s search engine Baidu surged 44% year-on-year. In addition, on the very day of the referendum, the index increase threefold. Similarly, Google Trends reported a more-than 500% spike in searches for the term ‘buy gold’ on the day of the referendum.