3 February, 2017

Hit by high gold prices, annual jewellery demand fell to a seven-year low of 2,041.6t.

  • Indian annual jewellery demand ended 2016 down 22% after a year of upheaval in the gold industry 
  • Chinese jewellery demand declined further from its 2013 peak; tight supply conditions constrained the market in Q4
  • The usual seasonal Q4 lift in global jewellery demand was augmented by a sharp fall in the gold price towards the end of the year: 26% growth was the strongest Q4 q-o-q rise for 10 years
Tonnes 2015 2016 YoY
World total 2,388.6 2,041.6 -15%
India 662.3 514.0 -22%
China 753.4 629.0 -17%

A 5% drop in Q4 (to 622.0t) set the seal on a difficult year for gold jewellery: full-year demand was down by 15%. Most markets saw losses, with just one or two exceptions. India and China – the two largest markets – together accounted for almost 80% of the 347.0t decline in full-year demand. India saw the biggest decline: the market faced challenges on several fronts.


High gold price helped push global jewellery demand to seven-year low

GDT Q4 2016 Jewellery - High gold price helped push global jewellery demand to seven-year low

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Source: Metals Focus; GFMS, Thomson Reuters; World Gold Council

Data as of


Indian annual jewellery demand fell to a 7-year low amid strikes, regulation and high gold prices. Indian demand was 148.3t lighter than 2015 – the biggest yearly decline recorded in our historical data series. 

Circumstances in India during 2016 created a very challenging environment in which to collect accurate data on gold demand. In Q1, the nationwide jewellers’ strike effectively shut down the gold industry. Further difficulties arose when the government’s clampdown on undeclared income – which reached its pinnacle in Q4 with the demonetisation policy – drove an element of gold demand into the shadier grey market. Should further information regarding demand come to light, we will revise the data accordingly.

October festival demand and a timely price dip lifted jewellery demand, before a liquidity squeeze kicked in. The steep drop in the gold price, which coincided with the festival of Dussehra, supported gold demand in the first two weeks of October. Lower prices also added lustre to the key gold-buying occasion of Diwali. Then came the government’s shock withdrawal of high-denomination (Rs500 and Rs1000) banknotes. 

The announcement on 8th November caught the market off-guard. Demand spiked in the few days immediately following the move. In a frantic bid to exchange now-obsolete banknotes, consumers rushed to buy gold: this pushed the local price to a premium over the global spot price. For many, gold had become the preferred route to channel their unaccounted wealth; prices for these ‘grey market’ transactions were reportedly as high as Rs50,000/10g, compared with a market price of Rs31,000/10g. This rush drained retailers of their stocks, before a severe liquidity squeeze took hold.  


Local Indian gold prices remain in discount

GDT Q4 2016 Jewellery - Local Indian gold prices remain in discount

Source: National Commodity & Derivatives Exchange Ltd; World Gold Council

Data as of

Rural communities were hardest hit by the cash crunch, but the effect is likely to be temporary; healthy incomes from the good monsoon should support gold demand going forward. Demand from the cash-reliant rural population fell sharply as liquidity dried up. And not just for gold. Sales of two-wheelers in November and December were down by 6% and 22% respectively. Mahindra and Mahindra reported a 23% fall in November tractor sales.

But this is a temporary phenomenon. As the invalid currency is returned, via bank deposits, to the financial system and gradually replaced with new Rs500 and Rs2,000 notes, liquidity will improve. The latest monsoon was good and rural incomes correspondingly healthy: this is positive for gold demand. The number of digital transactions should start to creep higher on the government’s push to increase transparency in the gold market. This may already be taking effect: national jewellery chain stores outperformed smaller, independent stores during the quarter. 

Demand was muted during the first few weeks of 2017 as the industry awaited the government’s 1st February budget, for confirmation of custom duty for gold and the GST rate to be imposed later this year. Once these details are confirmed, we expect healthy levels of pent-up demand – and re-stocking by the trade – to support the market.


Disappointing holiday sales contributed to a 13% y-o-y decline in Q4 jewellery demand in China. Despite the fall in the gold price, gold jewellery demand fell far short of expectations during October’s ‘Golden Week’ national holiday. We have previously highlighted that younger Chinese, in particular, prefer to spend their income on experiences such as travel, rather than on material things, including gold jewellery. And that trend certainly seemed to play out in October: as the number of domestic tourists soared from the previous year, sales of gold jewellery slumped.

Sentiment rallied in December, but consumer demand and trade stock-building were constrained by tight supply. Towards the end of the year, as the lunar New Year loomed closer, demand recovered. Sentiment improved as the outcome of the US election cleared a key element of uncertainty from the market. Consumer interest picked up, sparked by lower prices. Retailers, optimistic for strong demand during the late-January Chinese New Year festivities, placed chunky orders with manufacturers. 

The uptick in demand sparked a surge in imports. These flows were not, however, sufficient to quench demand.  A tightening of currency controls limited the amount of RMB banks could send overseas, which in turn affected the quantity of gold some importers could bring into the country. This fall in imports reduced the volume of gold available on the domestic market. The simultaneous rise in demand for jewellery, bars and coins caused a steep jump in the local premium on gold vs the global spot price, to almost US$50/oz. Conditions stayed tight in the opening weeks of 2017, ahead of Chinese New Year. And while higher premiums may have triggered recycling activity in recent weeks, the trade may need to re-build stocks throughout Q1, given December‘s sharp run-down of inventories.  

Other Asia

A modest recovery in demand after the Q4 price dip did not match the declines caused by higher average prices earlier in the year. Japan was the only country of the smaller Asian markets where jewellery demand grew in 2016, albeit by just 2%. A slight improvement in domestic consumption was partially offset by waning tourist demand. Vietnamese demand was broadly stable in 2016, inching down to 15.4t from 15.6t in 2015. A relatively low inflation environment, coupled with fairly healthy economic growth, underpinned jewellery demand, which has steadily recovered from the 2012 low of 10.5t. 

Middle East & Turkey

Annual jewellery demand in Turkey, further weakened by high local prices and fragile consumer sentiment in Q4, reached a low of 40.0t. Turkish consumers largely missed out on lower gold prices in October as unfavourable currency rates offset the drop in the US$ price. The challenging economic and political environment weighed further on consumer sentiment. This was reflected in a 15% y-o-y decline in Q4 demand.  

Lower oil prices, combined with a range of market-specific issues, affected demand across the Middle East: 2016 regional demand slowed 16% to a new low of 193.1t, despite growth in Iran. Low oil prices, weak tourist demand and salary cuts undermined gold demand in the UAE, which fell to a 19-year low of 43.0t. Egypt’s currency crisis helped drive demand down by 33% to a new low of 25.5t. Iran bucked the trend: 15% growth in Q4 helped push annual demand up to 41.0t. The improving domestic economy provided a supportive environment.

The West

The mild upward trend in US jewellery consumption came to an end in 2016: demand slipped 1% to 118.3t on weakness in the second half of the year. US consumers were more tentative in their demand for gold jewellery in the closing months of 2016. We did see the usual seasonal spike in Q4 gold demand, up 69% from Q3 on holiday-season buying. But this was disrupted by the November Presidential election, which gripped the nation and created an uncertain environment for many consumers.

Q4 and full-year demand in Europe followed similar patterns: France and the UK underperformed broad stability elsewhere. In France, 2016 jewellery demand softened by 4% as consumer confidence was undermined by security concerns and increasingly divergent domestic politics. In the UK, the tentative gains made since 2012 came to a halt. Post-Brexit uncertainty and pessimism affected consumers; Q4 demand fell 5% to 12.2t, leading to a 3% drop in annual demand to 25.2t.

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