Gold Demand Trends Q3 2016
Published 8th November 2016
Focus: Q4 update – impact of prices on consumer demand
The sharp rise in the gold price this year has stifled consumer demand
The rapid gold price increase in 2016, fuelled by strong institutional investor inflows, has hampered consumer demand: year-to-date bar and coin demand is down 13% and jewellery demand is at its lowest level since 2009. Field research throughout the year has indicated that some
consumers have been sitting on the side-lines waiting for a price dip before entering the market. For this section of the market the sharp 4.5% price drop in the first week of October proved to be the opportunity they had been waiting for.
Snapshot survey confirmed the October price dip was viewed as a buying opportunity
Consumer research highlights how important price movements are for many gold investors. At the start of the year we surveyed 4,000 investors across India, China, US and Germany to better understand gold buying behaviour. Gold’s role in preserving wealth and generating good longterm returns were primary motives for investing in gold. But perceptions of the price being low, or on the way up, was one of the most significant triggers to actually buying gold.
We responded to the sharp drop in prices at the beginning of October with a snapshot survey of 1,000 consumers in both India and China to see if they had been tempted to buy.1 The results confirmed that around a sixth had. Of the consumers surveyed 18% in India and 12% in China had bought gold directly in response to the price drop. A further 24% in India and 27% in China had bought gold, but unrelated to the price drop. Factors supporting this element of demand included the best monsoon in three years supporting rural incomes in India, and concerns over an ever-weakening currency and frothy property market in China.
Some consumers are still hoping for lower prices before entering the market
A large proportion of those surveyed – around a fifth in China and a third in India – are waiting for lower prices before entering the market. The price that would prompt them to buy gold varies considerably for these wouldbe consumers, but a significant portion would enter the market in response to a fairly modest price drop: 11% of those waiting for a price dip in India would buy before the price fell to Rs29,000/10g and 22% in China would enter the market before the price fell to RMB270/g. This suggests that we would see a healthy consumer response in both markets if the price started heading towards US$1,240/oz.2
Looking ahead, we expect Q4 consumer demand to have been boosted by the price drop in early October, and we would expect any further dips in the gold price to be met by a strong consumer response.
Chart 9: Indian and Chinese consumers’ reaction to the October price drop
In the week commencing 17 October, KANTAR TNS undertook an online omnibus survey of 1,000 consumers in India and China. The survey captured jewellery and bar and coins because a portion of jewellery demand in India and China is investment related.
In the week of the survey the gold price in India averaged Rs29,900 /10g, down 4% compared to the end of September. In China, it averaged RMB277/g, down 3% from the end of September. Note: the Indian rupee gold price reflects the 10% import duty.