Double-Digit Decline in U.S. Gold Jewelry Demand

The high price of gold continues to have a detrimental impact on the worldwide jewelry market as demand in this sector for the precious metal fell by 6 percent, year-over-year, in the first quarter of 2012, the World Gold Council said Thursday. The value of jewelry demand, meanwhile, grew by 14 percent to $28.3 billion.

Gold jewelry demand was weaker in all but six countries and clearly reflects the year-over-year 22 percent increase in the average gold price of gold to 1,690.57, according to the WGC Gold Demand Trend report for the first quarter of 2012.

In the U.S., demand fell 10 percent to 17.6 tons. In addition to the high price of the precious metal, the report blames high gas prices and cautious consumers. In value terms, gold increased by 10 percent to $958.2 million.

In Italy, demand slid 14 percent to 3.5 tons “as the negative economic environment took its toll,” according to the report. In the U.K., demand dropped 4 percent to 3 tons.

India, the world’s largest consumer of gold and gold jewelry, was largely responsible for the worldwide decline, according to the report. An unexpected substantial increase in the import tax on gold and the introduction of an excise duty on gold jewelry resulted in a three-week countrywide strike among jewelers until the government agreed to end the excise duty. A weaker rupee also added to the decline.

Meanwhile, China dominated the jewelry market as demand increased 8 percent to 156.6 tons in the first quarter. China accounted for 30 percent of all demand for the period, making it the largest gold jewelry market for the third consecutive quarter.

Demand in Russia was also robust with a 28 percent increase in the first quarter to 20.4 tons, attributed partly to stock building among the trade. However, the repot notes that “historically low inflation, GDP growth, improving consumer confidence and real wage gold,” contributed greatly to the gains. “Gold remains the most popular metal of choice among Russian jewelry consumers.”

Overall, global gold demand in the first quarter fell by 5 percent to 1,097.6 tons, the WGC reports. “This decrease was largely to be expected given the introduction of import taxes in India and high gold prices,” the report states. “Demand for the quarter was underpinned by increased demand in China, continued central bank purchasing and inflows into exchange-traded funds.”

Gold demand value for the period increased 16 percent to $59.7 billion. Gold demand includes its use in jewelry, technology, investment and official sector institutions (such as world banks).

“China and India have seen continuing economic growth and whilst China’s economy is expected to slow, it will nonetheless surpass the rates of growth in the West,” said Marcus Grubb, managing director, Investment at the World Gold Council. “As we previously forecast it is likely China will become the largest source of demand for gold in 2012.”

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De Beers Diamond Sales Decline 14%

De Beers Group, the world’s largest producer of diamonds, reported a 14 percent drop in overall diamond sales and a similar fall in rough diamond sales for the first six months of the year. The company’s profits fell about 50 percent and it announced that it will reduce diamond output from its mines in response to the “challenging” conditions.

The diamond mining and sales company said total sales decreased 14 percent to $3.3 billion for the first six months of 2012, compared with $3.9 billion in the first half of 2011. Sales of rough diamonds by the Diamond Trading Company, the rough diamond distribution arm of De Beers, in H1 2012 were $3.1 billion (including those through joint ventures).

Profit before finance charges and taxation for the first half of 2011 was $502 million, down from $1 billion a year earlier.

The company blamed “lower demand and changing product requirements from sightholders (75 approved buyers of De Beers rough diamonds under long-term contracts),” the company said in a statement. “While overall consumer demand for polished diamonds remained relatively healthy, sightholder demand was impacted by increased stock in the cutting centers, tightening liquidity and challenging conditions in India. However, early indications are that the US market continued to perform well, and the Chinese market, while slowing considerably, still showed positive growth.”

In the first six months of 2012, De Beers’ production totaled 13.4 million carats, compared with 15.5 million carats in the first half of 2011.

Philippe Mellier, chief executive of De Beers, reportedly said the company will continue to reduce its output through the end of the year and allow its sightholders to hold onto their inventories for up to six months, far longer than normal.

In its outlook, De Beers says it “expects trading conditions in the mid-stream to remain challenging during the second half of 2012 … (and) expects to see moderately positive growth in global diamond jewelry sales for the full year 2012, albeit at relatively modest levels, especially when compared to the exceptional growth levels seen in 2011. In the short term, the USA, China, the Gulf and Japan are expected to contribute the bulk of the growth, while India and Europe are expected to remain weak.”

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