High Gold Prices Deter Jewelry Demand

 

Global jewelry demand for gold declined 15 percent, year-over-year, to 476.5 tons in the fourth quarter of 2011, the World Gold Council reports. In value terms, demand was 5 percent higher at $25.9 billion, a quarterly record. 

For 2011, demand fell 3 percent, year-over-year to 1,962.9 tons, as the price of gold rose by 28 percent for the period. In value terms, demand grew by 25 percent to a record $99.2 billion, the WGC said in its Gold Demand Trends report. 

India and China account for 55 percent of total gold jewelry demand, WGC said.

The WGC defined the year for gold jewelry demand as a tale of two halves. The first half of the year saw demand increase by 9 percent, largely due to the precious metal’s two largest markets—China and India. Demand was also aided by a couple dips in price during the period.

The second half of the year saw demand decline by 13 percent to 941.2 tons due to “record gold prices reached during the third quarter, combined with an increase of price volatility, deterred consumers in a few key markets,” the WGC said in its Gold Demand Trends report for 2011.

Jewelry demand in India, the world’s largest market for gold, fell 44 percent (down 22 percent in value terms), year-over-year, to 103 tons. Annual demand of 567.4 tons was 14 percent below 2010 (down 13 percent in value terms). 

In China, the second largest gold market, fourth quarter gold jewelry demand was slightly above last year’s totals at 131.4 tons. The net result was an annual demand increase of 13 percent to 510.9 tons.

Fourth quarter jewelry demand in Hong Kong rose 37 percent to 7.1 tons, bucking the decline trend in Asia, due to “record inflows of tourists from mainland China, who continue to take advantage of lower taxes levied on gold in Hong Kong,” the WGC said.

In the U.S., gold jewelry continued its long term downward path with fourth quarter demand down 9 percent to 42.7 tons while full-year demand fell by 11 percent to 115.1 tons. By value, gold jewelry demand rose 12 percent for the quarter to $2.3 billion and 15 percent for the year to $5.8 billion. High prices for the precious metal, price volatility, a fragile labor market, depressed real estate prices and volatile stock market all contributed to hesitant consumer demand and fragile consumer confidence, WGC said.

“The independent, smaller jewelry stores have now begun to adopt a shift to silver jewelry that began among the major retailers in late 2010-early 2011,” WGC said.

In Italy, a major gold jewelry manufacturing center, fourth quarter gold jewelry demand dropped 17 percent to 14.8 tons (up 3 percent in value). For the year demand fell 17 percent to 28.8 tons. “Price remains the major hindrance to Italian gold demand, with increasing substitution to silver and other metals in the lower price ranges,” WGC said.

UK fourth quarter old jewelry demand declined 19 percent to 11.2 tons and down 17 percent 17 percent to 22.6 tons for the year.