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Quarter 1 gold demand: down 18% from last year’s exceptional high

World Gold Council

Global gold demand in Q1 2017 was 1,034.5t. The 18% year-on-year decline suffers from the comparison with Q1 2016, which was the strongest ever first quarter. Inflows into ETFs of 109.1t, although solid, were nonetheless a fraction of last year’s near-record inflows. Slower central bank demand also contributed to the weakness. Bar and coin investment, however, was healthy at 289.8t (+9% yoy), while demand firmed slightly in both the jewellery and technology sectors.


Indian recovery offset broad global weakness to support Q1 gold jewellery demand at 480.9t.

  • Although marginally firmer year-on-year, jewellery demand remains soft: Q1 2016’s 474.4t was a seven-year low;

  • The rising gold price was negative for demand, although one or two sharp pullbacks in gold were used as buying opportunities in some markets

  • The steady state of global demand concealed a more varied countrylevel picture. Gains were concentrated in India, Iran and the US, just outweighing modest losses elsewhere

Gold jewellery demand was broadly steady, but remains weak in the longer-term context. Demand was 18% below the 587.7t five-year quarterly average. The 9% rise in the US$ price between end-December and end-March restrained demand, although US dollar weakness meant that consumers in many markets were protected to some degree. Gold denominated in local currencies in most key consumer markets gained between 3% and 7%, although Turkey was a notable exception. The sector remains heavily influenced by India and China, which together account for over half of the market (56% in Q1).


Indian jewellery demand jumped 16% from last year’s exceptionally low level as market conditions improved after a very tough 2016. Pent-up demand from the closing weeks of 2016 was gradually released as liquidity improved. But Q1 was still weak at 92.3t only the third quarter this decade in which demand has fallen below 100t. And the industry remains uneasy, awaiting clarity on whether the forthcoming Goods & Service Tax (GST) will result in a higher tax burden for the end-user.

The gold price held mixed fortunes for Indian jewellery consumers during Q1: rupee strength meant the domestic price rose by 3%, compared with a 9% rise in the LBMA price. The local price rose steeply in the opening weeks of 2017 before a sharp appreciation of the rupee in February and March. The pullback in the price during March was well-timed to coincide with planned purchases of gold ahead of the Q2 wedding season and the Akshaya Tritiya festival at the end of April.

The RBI continued to remonetise India’s economy, thereby easing pressure on cash-strapped consumers. By the end of March, 85% of the value of currency removed from circulation under demonetisation had been returned. The RBI also gradually eased temporary restrictions on the amount of money that could be withdrawn from bank accounts, aiding cash-dependent rural demand in particular. Although the effects of the policy lingered, rural spending partially recovered as cash was injected back into the system. This is evidenced by motorcycle sales, which recuperated from the December lows.

Field research shows cashless transactions gathered momentum, reflecting relative outperformance of organized retailers. The government’s push for transparency in India’s economy began to take effect in the gold market, with a gradual shift towards electronic transactions. Although cash remains vital within the rural economy, consumers are gradually adopting cashless payment methods. This has helped bolster the performance of organised retailers, such as national chain Tanishq, which reported a ‘quite significant’ recovery in Q1 demand.

The outlook for India’s gold demand is robust, but GST remains a cause of concern. The combination of the wedding season, Akshaya Tritiya festival (falling on 28/29 April) and continued remonetisation of India’s economy should support gold jewellery demand. However, the market is wary of the forthcoming decision on GST and this will likely weigh on demand until the government’s final decision, due for implementation in early July.


In China, demand for gold jewellery softened slightly, down 2% year on year as the seasonal uplift broadly cancelled out the impact of higher gold prices. Demand in the first quarter was 176.5t, compared with 179.2t in Q1 2016 and 5% below the five-year quarterly average of 186.4t.

Demand was strong at the start of the year. The Lunar New Year fell relatively early (late January, compared with February in recent years), meaning traditional Chinese New Year purchases were concentrated in January. This seasonal demand was boosted by 2017 having a double spring and a leap month, making it an auspicious year for weddings. Once the festivities were over, demand dropped off as usual – an effect that was more pronounced due to the backdrop of rising gold prices.

China’s gold jewellery industry is resourceful in combating subdued consumer demand. Gold jewellery demand has been negatively affected by the slowing economic environment as well as by changing consumer tastes. Our consumer research has shown that younger Chinese consumers want to spend their money on experiences rather than material goods. This is backed up by research from Agility Research & Strategy which shows that the top three priorities for affluent Asian millennials are ‘health, travel and spending time with the family' . But they are also keenly aware of new trends and enjoy expressing themselves in ways that differ from tradition. Gold jewellery manufacturers and retailers are willing and able to tap into these trends, responding with innovation.

The 18k sector continues to grow. Manufacturers have responded by offering a wider array of designs, more intricate and modern than ‘traditional’ 24k jewellery. A new 22k segment has been introduced to cater for demand for new, innovative and trendsetting pieces. Some retailers increasingly specialise in bridal jewellery, targeting demand from that allimportant sector.

And some have chosen to innovate in terms of services: Decent group, for example, has recently introduced a new aftersales service, offering customers a nocost exchange option on jewellery from its bridal range (Xinxiyuan’s Wujiu Houde Gold).

So, although demand in China faces headwinds from the economy and the changing tastes of its consumers, the industry is keen and determined to adapt – an attitude that should help stem any weakness.

Other Asia

Jewellery demand within the smaller Asian markets was hit by the rising gold price, as well as rising political tensions in the region. In the face of rising gold prices, Japanese jewellery demand fell 9% year-on-year to 3.2t . A drop in Chinese tourist numbers was also a reported factor. In Thailand, sluggish economic growth contributed to a 5% decline in Q1 jewellery demand, falling to 3.1t from 3.2t in Q1 2016. The government responded with several measures designed to boost the domestic industry. These included waiving tariffs on raw material imports used in jewellery production , and making low-interest loans available for small- and medium-sized

businesses to upgrade machinery.

Middle East & Turkey

After the usual Q4 uplift, demand in Turkey sank to a fouryear low of 7.7t. Continued currency weakness in Turkey meant that the price of gold in lira rose more than in any other currency during Q1 (+12%), undermining jewellery demand. The fragile economic and political conditions that have beset Turkey over recent years were again a key factor behind the weak Q1 number. The mid-April

referendum on changing Turkey’s constitution from a parliamentary to a presidential republic weighed on demand for the sector. And the outlook for the market is weak as the local price remains prohibitively high for many at a time of deteriorating economic indicators.

Demand in the Middle East – virtually unchanged at 54.6t – followed a familiar pattern: growth in Iran contrasted with weakness elsewhere. Jewellery demand in Iran jumped 27% year-on-year to a four-year high of 12.9t, helped by an improving economy. The sector was also boosted by investment-driven purchases, due to a lack of supply of gold coins from the central bank.

Demand across the rest of the region remained weak in the face of low oil prices and subdued tourist numbers, the impact of which was exaggerated by rising gold prices. Although the UAE has imposed a 5% import duty, demand in that market was relatively robust as consumers rushed to buy before the full effect of the tax fed through to end-user prices.

The West

Growth in US jewellery demand resumed, leading to the strongest Q1 since 2010. A postelection lift in US consumer sentiment buoyed jewellery demand in the first quarter: it rose 3% to 22.9t. Plain yellow gold was more popular in the US than in European markets. High-end and online retailers performed strongly. The online segment is also gaining strength, particularly with continued growth in ‘clicks and mortar’ retailing – the overlap between the virtual and physical retail environments.

European jewellery demand was again dragged down by weakness in France and the UK; the rest of the region was stable. Demand fell 6% year-on-year in France on pre-election uncertainty and the rise in terrorist activity which has impacted tourism. Structural factors are also at work in this market, with branded silver making continued inroads into market share.

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