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WGC: Drop in gold jewelry demand 'less severe'

August 21, 2009
Though consumer demand for gold jewelry fell during the second quarter of 2009, market signs could be pointing to stabilization in the market, perhaps leading to an uplift in sales for gold jewelry pieces like this "Sunshine Ring" by Ana Cavalheiro. Crafted in 18-karat yellow gold, the design features a 22-carat citrine. AnaCavalheiro.com

New York--Severe global economic conditions coupled with high gold prices in the second quarter of 2009 have contributed to a widespread decline in consumer demand for gold jewelry, according to the "Q2'09 Gold Demand Trends" report published by the World Gold Council (WGC).

According to the report's figures, compiled independently for the WGC by precious-metals consultancy GFMS Ltd., worldwide consumer demand for gold jewelry was down 22 percent in the second quarter, compared with the same period last year.

An exception, however, was Mainland China, recording 6 percent growth in tonnage relative to the second quarter of 2008. The report attributes the increase to China's historic low base of consumer demand, the relative stability in the local currency and gold price, and the resilience of the Chinese economy to the global economic downturn.

Overall gold demand, while remaining very high on a historic basis, was down 9 percent in the second quarter year-over-year, a 6 percent decrease in U.S. dollar value terms to $21.3 billion.

In the United States, total gold off-take for the quarter was 10 percent above the levels of the year before, equivalent to an increase of 13 percent in U.S. dollar value terms. Jewelry off-take in the second quarter was down 19 percent in tonnage terms over the previous year, and down 17 percent in U.S. dollar value terms. According to the report, these rates of decline were significantly less severe than those seen in the fourth quarter of 2008 or the first quarter of 2009, suggesting that the declining trend in demand might be stabilizing.

Also on the positive side was quarter-two investment demand for gold, which remained strong, increasing 46 percent over year-earlier levels to 222 tonnes.

Net retail investment, which includes demand for bars and coins, was up 23 percent compared with the previous quarter, and 12 percent over the same quarter in 2008.

Flows into gold exchange-traded funds returned to a historically robust level of 57 tonnes after an exceptional first quarter that saw net inflows of 465 tonnes, while inferred investment stood at 195 tonnes in the second quarter, up from 10 tonnes over year-earlier levels, according to the report.

Total gold supply was up 14 percent relative to year-earlier levels at 927 tonnes, while second-quarter supply was 23 percent below the levels of the previous quarter. The main contributor, according to the report, was a 41 percent reduction in recycled gold, suggesting that profit-taking and distress-selling has decreased.

"This is another excellent quarter for gold demand as gold's unique properties and broad demand and supply base continue to sustain a vibrant market and support the price," WGC Chief Executive Officer Aram Shishmanian said in a media release. "Although demand failed to match the exceptional levels seen in previous quarters when the economic and financial crisis was at its peak, demand nevertheless remained very robust throughout the quarter. Investment demand, in particular, witnessed a strong quarter, and we believe this indicates a growing recognition of gold as an important and independent asset class."
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