Global gold jewellery consumption in Q2 of 476t was 3% higher y/y as strength in China outweighed weakness in India. Demand virtually flatlined from the previous quarter, taking H1 demand to 951t. Fabrication volumes of 491t in Q2 resulted in inventory growth of 15t. In part, this stock build was the result of Chinese demand falling short of manufacturers’ expectations.
1 August, 2023
Jewellery demand proves resilient in the face of high gold prices
- Jewellery consumption in Q2 strengthened modestly y/y, up 3% despite historically high (if not record) prices in most markets
- The H1 total for jewellery demand was also slightly firmer compared with 2022, primarily due to China’s recovery from the COVID lockdowns of 2022
- India, in contrast, was a drag on global demand as consumer demand softened in reaction to record high local gold prices
Source: Metals Focus, World Gold Council
Gold prices remained at historically high levels in Q2*
GDT Q2 2023: Jewellery chart 1
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer
*Data to 30 June 2023.
In the context of the very high gold price environment, jewellery demand has been remarkably resilient so far this year. China’s recovery from the severe 2022 consumption drought goes some way towards explaining this buoyancy, as does the investment motive that helps to drive purchases in high-carat markets including Turkey and India. Prospects for the sector for the rest of the year are muted (see Outlook), given that prices have remained well supported and consumers across much of the globe face a deteriorating economic picture.
Global jewellery demand resilient so far in 2023, but remains below 10-year average*
GDT Q2 2023: Jewellery Chart 2
Sources: Metals Focus, Refinitiv GFMS, World Gold Council; Disclaimer
*Data as of 30 June 2023.
Gold jewellery demand in China reached 132t in Q2, 28% higher y/y. The sizable y/y growth is, however, built on a weak base given the strict COVID-related lockdowns that hampered the market last year. Demand for H1 totalled 328t, 17% higher y/y but 4% shy of the 10-year average.
The end of the zero-COVID policy laid the foundation for a rebound in China’s gold jewellery demand in H1. Pent-up wedding demand from last year also provided support. Furthermore, gold’s unique dual nature, as a value-preserving asset and everyday accessory, continued attracting attention during Q2 as the local economic recovery became increasingly uncertain and the RMB depreciated. This is also apparent in the fact that gold jewellery demand strongly outperformed other demand categories, particularly diamonds.
But demand has yet to return to its 10-year average level. The record quarterly average local gold price weighed on demand, as did increased spending on tourism and entertainment, both of which are competitors for gold’s share of discretionary expenditure.
Premium hard pure (24K) gold products gained popularity. As the local gold price rose, these products enjoyed the strongest growth in H1, their lighter weights offsetting the impact of higher gold prices and better suiting the budgets of younger consumers. Increased transparency in pricing is further attracting consumers to these ranges.
Demand for antique-crafted gold jewellery remained robust. However, volume growth slowed as heavier pieces suffered from affordability constraints in the high price environment. The industry has therefore shifted focus to lighter-weight pieces in this range, including those with enamel and gem inlays.
In contrast, 18K jewellery – known for its intricate designs but with lower gold purity – continued to lose market share. The long-term decline in this sector was reflected by the fact that retailers are dedicating less space to these collections.
The domestic gold industry expects demand to rebound in August as the usual seasonal factors begin to kick in. Holiday-related spending may support gold jewellery demand in the second half of the year. Industry events such as the Shenzhen Jewellery Fair could prompt more active replenishing among retailers and wedding demand should lift consumption during H2 — traditionally the peak season for marriages.
But this outlook contains risks, not least from the increasingly fragile domestic economic environment, which may cause consumers to become increasingly cautious about discretionary spending. The local gold price will also be a key factor; should it remain elevated, or strengthen, this will likely further curtail demand.
China’s post-COVID rebound tempered by near-record prices and faltering economy*
GDT Q2 2023: Jewellery chart 3
Sources: Metals Focus, World Gold Council; Disclaimer
*Data as of 30 June 2023.
Indian gold jewellery consumption fell by 8% y/y to 129t in Q2, undermined by record high gold prices. This took H1 demand to 207t, down 12% y/y. 18k gold jewellery continued on an upward trend, as consumers were attracted by the affordability of these products.
Given the gold price, it would have been reasonable to expect far weaker gold jewellery demand. But arguably the supportive economic backdrop helped, with GDP growth forecast to increase by 6.3% for FY2023/24. A kneejerk reaction to the ban of 2,000 rupee notes during the quarter had a brief but notable impact on gold demand.
Unofficial flows of gold surged again in Q2, in response to the high gold price, which served to encourage import duty avoidance.
Although demand has held up relatively well so far this year, we are cautious regarding H2 prospects. Local prices, although off their record highs, remain elevated. And although the domestic economy remains relatively healthy there are indications of a slowdown in discretionary spending, with FMCG sales apparently declining during the quarter. The success – or otherwise – of the monsoon season will also have a considerable bearing on demand for the remainder of the year.
Middle East and Turkey
Jewellery demand in Turkey posted a fourth consecutive double-digit y/y % increase. Demand was 23% higher at 10t, taking H1 demand to a five-year high of 19.7t (+25% y/y). Such growth is all the more remarkable when considered against the backdrop of gold price moves in the local market, with Turkish lira prices approaching TRY50,000/oz by the end of June. This highlights the strength of the investment motive behind gold jewellery demand, as does buoyant demand for high-purity 22k jewellery relative to 14k. The specific dynamics of Turkey’s gold market in recent quarters are covered in more depth in the Investment section.
Q2 jewellery demand in the Middle East declined by 5% y/y, to 45t. UAE saw the biggest drop, although this was largely due to base effects as Q2’22 benefited from the post-COVID relief rally that sparked a big jump in spending. Iran and Egypt suffered as a result of poor economic conditions; demand in both markets dropped below 7t, down 7% and 8% respectively.
Total H1 demand in the Middle East is 6% lower y/y, at 89t. This is comfortably above the 82t H1 average for the last five years, although that figure is distorted by the very weak 2020 figure.
US and Europe
The US registered a fifth consecutive y/y decline in quarterly jewellery demand, down 7% to 34t in Q2. In a longer-term context, however, demand remains relatively healthy. Q2 demand was bang in line with the five-year quarterly average. And while H1 demand of 59t was 7% lower y/y, this represents a healthy improvement on pre-pandemic norms, before demand was boosted by a jump in disposable income.
The second quarter decline reflected the continued winding down of government income support programmes, as well as the ongoing shift in consumer spending towards services. High gold prices were also a factor, with retailers finding it increasingly difficult to sell product at the US$100 price-point – a psychologically important level for consumers in the lower end of the market.
European jewellery consumption edged fractionally lower in Q2, down 1% y/y to less than 16t. However, the decline was driven solely by the UK, where the cost of living crisis and a drop in the number of weddings played a major role. The euro’s strength blunted gains in the international gold price and helped support modest gains in demand across mainland Europe.
Indonesia witnessed an 11% y/y drop in Q2 gold jewellery consumption to less than 5t. Although weak, Indonesia’s gold jewellery demand has proven more resilient than that of many neighbouring countries, and H1 was marginally higher y/y, thanks to the strong Q1.
High local prices were a deterrent to consumers during Q2, pushing them towards lower-carat (less than 18k) jewellery. Government regulation aimed at increasing transparency has also snarled up the supply chain.1 The new regulation requires all B2B transactions to be recorded centrally, which has created bottlenecks and reduced the supply of gold jewellery in the domestic market.
The continued slowdown in Vietnam’s economy drove jewellery demand down 18% y/y to less than 4t in Q2. GDP growth in the country has undershot expectations for two consecutive quarters, impacting market sentiment.
In Thailand, high gold prices, uneven economic recovery and political uncertainty were behind a 10% y/y drop in Q2. Demand declined to less than 2t as consumers were encouraged to sell back old gold jewellery rather than buy new.
Rest of Asia
Japan was a clear outlier among the smaller Asian markets in Q2; demand gained 5% y/y. Despite high gold prices, local demand continued its recovery back towards pre-pandemic levels; H1 demand of 7t was the highest since 2019, likely supported by investment-driven buying as heavy, plain gold chains (known as “kihei”) remain a popular choice.
South Korea witnessed a fourth consecutive double-digit decline in Q2 as local gold prices reached a record high. Demand slid to 3t, the lowest for a second quarter in our data series back to 2000. Local currency depreciation at a time of strong dollar gold prices proved too much for South Korean consumers, who are already battling with a rising cost of living.
Jewellery demand in Australia recorded a 9% y/y decline in Q2. Demand weakened to 2t as the cost of living crisis weighed on jewellery spending.