Gold demand for jewelry fabrication in the second quarter surged to its highest level in five years as a sharp drop in the price of gold was “met with a very positive reception across the globe,” the World Gold Council said Thursday.
Gold jewelry demand by volume increased 37 percent to 575.5 tons, according to the WGC’s Gold Demand Trend report for the second quarter of 2013. The demand for gold jewelry was so great that it far outweighed the decline in the average gold price as the demand in terms of value rose 20 percent to nearly $26.2 billion, the fourth highest on record.
The price of gold for the second quarter fell by more than $400 an ounce (a 12 percent drop), according to the WGC, the marketing development organization for the gold industry.
“Although jewelry demand is influenced by a wide set of factors, including economic growth, consumer sentiment and disposable income, to name a few, all were eclipsed by the effect of the drop in the gold price,” the WGC said in its report. “The resultant buying frenzy caused a huge rise in regional premiums on gold, as supply chain bottlenecks caused delays in meeting demand.”
The upward trend was “almost universal,” the WGC said, with the most notable year-over-year improvements in India, China, the Middle East and smaller Asian countries. Demand included an increase of higher-karat gold jewelry. Europe was the only region where jewelry demand failed to rise.
The US reported its second consecutive quarter of growth. Demand remained the healthiest at the higher end of the market, however, the WGC noted that the middle market is beginning to shift from lower- to higher-karat gold. The WGC also said the lower prices provided an opportunity for wholesalers to stock early for the Christmas holiday season.
India and China, again, generated the largest volume increase—almost 120 tons of the 155-ton increase in demand was from these two countries, according to the report. Hong Kong generated the strongest percentage growth in demand (approximately 65%), surging to a record 12.1 tons. In fact, double-digit growth was commonplace throughout the Asian markets, with the exception of Japan, which was unchanged. In Indonesia, demand of 7.8 tons was the strongest second quarter since Q2 2009.
In Turkey, a gold jewelry manufacturing center, demand hit a record high in terms of local currency value, led by consumer bargain hunting (concentrated in 22k market for investment) and trade inventory building. Growth across the Middle Eastern region was almost purely price-related, the WGC said.
The improvement in the US market was not replicated in the western European market, “where negative economic conditions overwhelmed the positive impact of lower prices,” the WGC said. In Italy, another major gold jewelry manufacturing center, demand fell by nearly 10 percent and in the UK demand dropped by more than 20 percent.
Jewelry demand in Russia “continued to normalize towards pre-crisis levels,” the report states, with demand concentrated on the high and low ends of the market.
The Gold Demand Trends report also tracks gold demand for investment and technology purposes. In the second quarter, overall gold demand fell by 12 percent to 856.3 tons due to the drastic drop in the price of the precious metal. This translated to a 23 percent drop in value to $39 billion—its lowest level in more than five years.
“Record quarterly investment in gold bars and coins was countered by sizeable outflows from ETFs as western investors reacted to a seemingly more positive outlook for the US economy and an eventual tapering of quantitative easing,” the WGC said.
Forbes, Anthony DeMarco