8 November, 2016

Jewellery remained subdued in the face of persistently high gold prices; fourth quarter holds better prospects.

Tonnes Q3'15 Q3'16 YoY
World total 621.6 493.1 -21%
India 241.1 154.7 -28%
China 180.6 141.5 -22%

Gold jewellery demand in Q3 fell 21% year-on-year to 493.1t. This was the largest decline since Q2 2014 and the lowest third quarter for jewellery demand since 2011 – a time when average gold prices were some 28% higher than recent levels. Year-to-date jewellery demand is 18% down on last year: 1,423.6t vs 1,732.7t. This is the lowest Q1–Q3 total since 2009.

High prices were the key reason for continued weakness in the jewellery sector, which has been severely depressed throughout 2016 so far. Barring just three or four very minor exceptions, jewellery demand fell in every consumer market that we track.

Looking ahead, the fourth quarter – having started on a stronger footing – should see a recovery in the jewellery sector. The October drop in the gold price was fortuitously timed. The approach of key buying occasions, such as: the festival and wedding season in India; the main holiday season in Western markets; and Chinese New Year, make consumers in these markets more alert to lower prices.

But that is not to say that we expect a clear revival. Pressures remain. Government policy in India is disruptive to the market, at least in the short term. Chinese consumers are exhibiting changing tastes. The consumer environment in European markets and the US remains hesitant. And while troubles continue to beset the Middle Eastern markets, demand across the region will suffer.


The sharp increase in the gold price has knocked jewellery demand

GDT Q3 2016 Jewellery - The sharp increase in the gold price has knocked jewellery demand

Source: ICE Benchmark Administration; Datastream; World Gold Council

Data as of

India takes a smaller share of a diminished jewellery market

As discussed in Key themes, jewellery demand in India was again soft due to higher and volatile prices of gold (the corollary of which was a jump in recycling activity) and government regulation curtailing unaccounted income. Demand dropped by almost a third to 154.7t. The persistent weakness in this market in recent quarters means that India’s share of total jewellery demand has shrunk from 28% in Q1–Q3 2015 to 24% year-to-date. India has taken a smaller slice from a smaller pie.

Rural indian consumers were hesitant, but indications for this sector are encouraging

Although demand among the rural population was softer than may have been expected, given the improved monsoon rainfall this year, it was relatively resilient compared with demand in urban areas. Partly, this is due to the typically smaller transaction size made by
rural consumers, making them less likely to meet the requirement for PAN cards, which has severely hampered urban demand.

And signs of continued recovery in this sector of the population can be gleaned from looking at indicators such as sales of tractors. Mahindra and Mahindra (India’s leading tractor manufacturer) reported a 37.4% increase in domestic tractor sales compared to Q3 2015, growing by a whopping 70.3% in September. Rajesh Jejurikar, President and Chief Executive of Mahindra & Mahindra’s Farm Equipment and Two-Wheeler Division, commented that, “In September 2016 we had a strong growth of 70% over September 2015, with sales of 29,035 tractors in the domestic market. We expect the good momentum to continue with the upcoming festive season and the effect of a good monsoon.”1

Higher Kharif 2 output will bolster rural income in the coming quarters

The monsoon rains were well distributed and about 85% of the country’s geographical area received normal or excess rains this year. Estimates are for a 7–8% increase in Kharif foodgrain output in 2016, which will generate additional income for the rural sector to divert to gold in the coming quarters.3

China’s appetite for gold slipped further in the third quarter of 2016 on high prices and changing consumer behaviour

Demand for gold jewellery in China fell by more than 20% to a four-year low as gold prices reached the highest level since 2013. The decline was further reinforced by the high base effect from the mini-boom in Q3 2015, spurred by currency depreciation. Chinese consumers stayed sidelined and retailers postponed restocking. Much of the decline was concentrated in July, coinciding with the peak in the local price.

Consumer preferences continue to evolve in China, aided by industry efforts

Tastes are shifting further away from traditional 24k gold towards higher-designed 18k or gem-set pieces. 24k bore the brunt of the weakness, with 18k in particular making inroads in market share. However, this shifting landscape is not purely being driven by changing consumer tastes. Producers are playing a key role in promoting these products due to the higher margins they generate. The industry is still consolidating and competition is fierce. Manufacturers, wholesalers and retailers are battling for market share. Recognition of the importance of brand has led companies to promote their brands more actively through a range of channels, including franchising, celebrity endorsements and media.

And the industry also faces the challenge of the rising popularity of ‘experiential’ purchases at the expense of physical consumption

The trend for consumers – especially the so-called ‘millennials’ – to prefer spending their money on experiences that can be shared, rather than on material goods, is well publicised. Evidence of this can be seen in the way the Chinese populace chose to celebrate the recent ‘Golden Week’ national holiday. Over the last three years, the number of people choosing to travel during this holiday has grown by nearly 25%, reaching 590 million. 31% of this year’s tourists were millennials, born after 1980.


Chart 5: Growth in Chinese tourism highlights rising popularity of ‘experiential’ purchases

GDT Q3 2016 Jewellery - Chart 5: Growth in Chinese tourism highlights rising popularity of ‘experiential’ purchases

Source: China Tourism Academy; World Gold Council

Data as of

Price driven weakness in jewellery demand affected all Asian markets

Jewellery demand was universally weaker among the smaller markets in South East Asia as consumers baulked at gold prices around 3-year highs. Indonesia, the largest of the group, fell by 6%. The local gold price jumped, albeit that the currency strengthened slightly against the dollar towards the end of the quarter. Taken in the context of slower-than-expected GDP growth in the country (5% p.a. as against President Widodo’s 7% target), the contraction in demand is in line with expectations.

South Korea witnessed the largest decline: down 24% year-on-year to 2.8t. The high gold price was the main reason for the decline, but the country has also been affected by the economic deceleration in China, which absorbs around 25% of South Korea’s exports. Japan was also affected by China’s sphere of influence: mainland tourists have been less active in buying gold during their travels to Japan. Demand slipped 4% to 4.2t in Q3, although on a year-to-date basis the market is fairly resilient, up 2% on Q1–Q3 2015.

Middle Eastern jewellery markets remain in a parlous state

Jewellery demand across troubled Middle Eastern markets continued to decline, reaching record lows in Egypt and the UAE. Against the backdrop of regional conflict, which has made swingeing cuts in tourist demand, high gold prices and lower oil revenues contributed to the weakness. As in other price-sensitive markets, the corollary to this was a rise in recycling across the region.

Egypt’s currency crisis has resulted in an almost doubling in the local price of gold over the first three quarters of 2016

Year-to-date demand is down 42% on the same period in 2015, and Q3 demand halved to just 6t. Persistently low oil revenues in the UAE and Saudi Arabia, have strained finances and impacted jewellery consumers: demand in both markets plunged 23%. Iran again outperformed, managing 6% growth year-on-year in Q3 as the country continues to benefit from more favourable economic
conditions than other markets in the region.

Record local prices in Turkey kept demand on a downward trajectory

Notwithstanding the impact from cross-border conflict, the jewellery market in Turkey faced a number of headwinds – namely: the slowing economy; record local prices; and uncertainty following the attempted coup. The 22% drop in Q3 demand took year-to-date demand to 27.3t, down 20% on 2015. The prospects for the fourth quarter remain weak as political instability and continued lira weakness
frame the consumer picture.

Growth cycle in US jewellery demand runsout of steam

A modest 1% year-on-year downturn in Q3 jewellery demand in the US was the first such decline for three years. Year-to-date demand of 74.6t is almost exactly on a par with last year. Jewellery imports subsided during the quarter as inventory levels across the supply chain are at healthy levels. Uncertainty associated with the Presidential election campaign undoubtedly explains a portion of this weakness, but research suggests that wealthy consumers have also become more reluctant to spend amid concerns about the global economy.

Recent consumer research that we have conducted reveals some interesting patterns of behaviour among US jewellery consumers, and discusses possible strategies for market growth. We outline the findings in our Focus Box ‘US jewellery: motivations and opportunities for growth.’

Poor consumer confidence across European markets takes its toll on jewellery demand

France was again the laggard in Europe, where the recently-introduced 9k gold segment went into retreat. Demand was the lowest in our historical series – down 4% to 1.9t. The market faces the continued risk of silver eating into the market share of low-carat gold jewellery. All other markets saw declines in the region of 1%–2%, with the exception of Spain, where demand appears to have formed something of a base around 1.7/1.9t per quarter.


  1. India has two main cropping seasons: Kharif and Rabi. Kharif crops are sown during the summer monsoon, beginning with the first of the rains in July, and are harvested in the winter. Rabi crops are sown during the winter months, with a spring harvest

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