Worldwide demand for fabrication of gold jewellery slumped to a 28-year low at 1,406 tonnes, falling by 38% year on year as well, with dramatic declines in both the world’s largest gold jewellery markets, China and India, according to a statement issued by Thomson Reuters announcing the publication of its GFMS Gold Survey Q4 2016. This was the lowest since 1988 in volume terms.

The agency noted that despite the dip in fabrication demand, there was a slight increase in jewellery consumption as consumers responded to the somewhat lower prices during the last quarter of 2016. As per the report, global jewellery consumption demand stood at 1,748 tonnes in 2016, still below the level of 2,184 tonnes touched in 2015.

Indian jewellery fabrication was at a 20-year low in 2016, the report states. It says that consumption and physical imports were hit in the first three quarters as a result of government measures such a mandatory PAN for all purchases over Rs 2 lakh and the imposition of excise duty, as well as the cumulative effect on rural demand of two consecutive weak monsoons in earlier years. The agency says that from October onwards the divergence between fabrication demand and actual consuption rose, so much so that in Q4, jewellery consumption was relatively flat year on year, while fabrication demand dipped by 25%.

The report noted that even though China became the largest gold consumer overall again, this was not in any way a reflection of strong demand there. In fact, jewellery demand in China was down 14.8% year-on-year in the final quarter of 2016 with the K-gold and gem-set gaining market share. Physical demand from the jewellery industry fell 14.8% year on year during Q4 to 146.6 tonnes. However, here too there was some marginal improvement in consumption in the final week of December as prices dropped to seemingly more attractive levels.

The Gold Survey also reveals that the final quarter of 2016 saw the gold market in the largest surplus since Q4 2005, with ETF sales and constrained Indian demand due to demonetisation playing key roles.

It added that lower prices in Q4 did help to spark markedly higher retail investment demand compared to the previous quarter, with the election of President Trump playing a more minor contributory role. Physical demand was at a seven-year low in 2016, and while it did rise 29% quarter-on-quarter in the final three months of 2016, this was arguably a disappointing result, as demand was still down 10% year-on-year despite the slump in prices.

The report concludes by stating that though there has been some revival in the gold price in the first few weeks of 2017, the strength of the US dollar and the lower physical demand from Asia will continue to keep prices subdued. The agency forecasts that gold will average $1,259 per ounce in 2017.