Wedding purchases and lower prices lifted Indian gold jewellery demand to 125.4 tonnes, a 5% increase on the same period last year and the highest first quarter since 2015, according to the World Gold Council’s (WGC’s) latest Gold Demand Trends report.
The first half of the quarter was subdued; the month-long inauspicious period of Kharmas/ Malmas ended in mid-January and was followed by a sharp rise in the local gold price, hitting R33,730/10g by the third week of February. Prices then swiftly retreated, falling to R32,000/10g by the first week of March, and consumers took advantage of the correction, rushing to make wedding-related purchases and pushing the local price to a premium, WGC noted.
“A higher number of auspicious days boosted wedding-related demand. There were 21 auspicious wedding days in the Hindu calendar during the first quarter of 2019 – three times that of the first quarter of 2018. This was a crucial factor behind the growth in India’s jewellery demand,” it added.
So far, the market has been largely unaffected by the restrictions on cash movement that came into force mid-March. The code of conduct for elections restricts anyone from carrying cash worth more than R50,000 (approximately $700) without also carrying documentation proving the legal source of, and end use for, that cash, WGC stated. “But this could act as something of a headwind for demand throughout the second quarter, given the timing of the election – April 11th to May 19th. Retail promotions also attracted consumers,” it said.
The report noted that organised retailers, conscious that gold jewellery faces growing competition from electronics, designer brands and vacations, have launched promotional schemes to attract consumers. Most common were campaigns offering discounts on jewellery-making charges, but some retailers also began actively promoting low carat (14-karat), lightweight jewellery, specifically targeting younger consumers. Alongside these promotional efforts, jewellery demand will likely be boosted in the second quarter, by traditional wedding season buying, the Akshaya Tritiya festival on May 7th and higher crop prices than last year, WGC said.
Chinese consumers were relatively conservative in their jewellery buying in the first quarter, the report stated. Demand softened by 2% to 184.1 tonnes, despite the traditional boost from the Chinese New Year holiday. The market faced a few headwinds: gold prices were relatively volatile during the first quarter and consumers remained wary of the slowdown in the domestic economy, particularly against the background of the international trade conflict.
Jewellery markets in the Middle East and Turkey experienced mixed fortunes in the first quarter. While demand in both Turkey and Iran was hit by sliding currencies, Egypt registered decent gains. Although the UAE and Saudi Arabia saw growth, this was largely because the first quarter of 2018 was very weak due to the introduction of VAT.
The US jewellery market saw marginal growth: demand reached 24 tonnes in the first quarter. Although this was the ninth consecutive quarter of year-onyear growth in the third-largest gold jewellery market, the pace of expansion slowed notably. The prolonged government shutdown hit demand in January, as demonstrated by a drop in gold jewellery imports that month.
But a few bright spots remain. The higher-end jewellery segment remains robust. And independent retailers in more affluent and/or Hispanic-dominated areas reported a strong quarter. Lower-tier, mass market retailers were less resilient, although the challenge to gold from branded silver and costume jewellery is fading which bodes well for demand. One area of concern is the wedding market, where platinum and base metals are encroaching on gold’s position as the metal of choice for men’s wedding bands, WGC commented.
Central banks and ETFs lift global gold demand
Global gold demand grew to 1,053.3 tonnes in the first quarter of 2019, up 7% on the same period last year. This year-onyear increase was largely due to continued growth in central bank buying, as well as growth in goldbacked exchange-traded funds (ETFs).
Central banks bought 145.5 tonnes of gold in the first quarter, up 68% on the same period in 2018 and representing the strongest start to a year since 2013. Diversification and a desire for safe, liquid assets were again the main drivers of the purchases, WGC noted. On a rolling four-quarter basis, gold buying reached a record high for WGC’s series of 715.7 tonnes.
ETFs and similar products added 40.3 tonnes in the first quarter, up 49% on last year. Funds listed in the US and Europe benefitted from the largest inflows, although the former were more erratic while the latter were underpinned by continued geopolitical instability, it noted.
Bar and coin investment softened slightly, down 1% to 257.8 tonnes. This was purely due to a fall in demand for gold bars, as official gold coin buying grew 12% to 56.1 tonnes. China and Japan were the main contributors to the decline: in Japan, net investment turned negative on profit-taking following a surge in the local price in February.
Gold used in applications such as electronics, wireless and LED lighting fell 3% to 79.3 tonnes. Trade frictions, sluggish sales of consumer electronics and global economic headwinds hit the technology sector.
Alistair Hewitt, head of market intelligence at the World Gold Council, said: “The beginning of 2019 saw a sharp recovery in investor sentiment in both the equity and debt markets, but appetite for gold remained solid. In the first quarter, central banks continued to increase their holdings of gold, while ETFs also saw an increase in inflows compared with the first quarter of 2018. European investment in ETFs hit a record high and this quarter’s figures suggest that the factors that are driving the investment – negative yields on Eurozone sovereign debt, geopolitical uncertainty and financial market volatility – will continue to underpin investment demand. In addition, central banks on both sides of the Atlantic putting monetary policy tightening on hold – and potentially easing – is likely to be supportive of gold.”
The total supply of gold was largely unchanged in the first quarter at 1,150 tonnes. Modest growth in mine production and recycling was offset by a decline in net hedging. Mine production and recycling levels saw small increases compared with the first quarter of 2018, rising to 852.4 tonnes and 287.6 tonnes respectively.