Gold jewelry demand plunges 46% in the first half of 2020

Gold jewelry demand in the first half of 2020 fell to unprecedented levels due to the global coronavirus pandemic, which shut down the consumer economy in much of the world. Further deterioration in demand occurred as gold investment increased during the downturn, causing its price to dramatically rise.

“The COVID-19 pandemic was again the main influence on the gold market in the second quarter, severely curtailing consumer demand while providing support for investment,” according to the World Gold Council’s Gold Demand Trend report for the second quarter. “The global response to the pandemic by central banks and governments, in the form of rate cuts and massive liquidity injections, fuelled record flows of 734 tons into gold-backed exchange-traded funds (ETFs). These flows helped lift the gold price, which gained 17% in U.S. dollar terms over the first half, hitting record highs in many other currencies.”

Global jewelry demand in the first half of the year fell 46% year-on-year to a new low of 572 tons, according to the report. Second quarter demand plunged 53% year-on-year to a record low of 251 tons, “as consumers across the globe felt the impact of market lockdown and the resultant economic slowdown,” the report states.

In value terms the story was the same. Despite the strength in gold prices over the period, the first half value of gold used for jewelry fell to $30.1 billion, the lowest in value terms since 2009.

China and India, which combined account for roughly half of global gold jewelry consumption, were the biggest contributors to the first half decline, according to the report. “Their size relative to the rest of the gold jewelry market means weakness in these two countries has an overwhelming impact on global demand.”

China

China’s second quarter jewelry demand was down 33% year-on-year to 90.9 tons, while demand for the first half of the year fell 52% to 152.2 tons, “due to COVID-19’s lasting impact on consumer wallets,” the report states. However, China was the first country to emerge from the lockdown and because of this it was the only country to witness a second quarter recovery from extreme first quarter weakness. Markets opened up again in March, which relieved some pressure on consumer incomes.

“Nevertheless demand in H1 remained extremely muted,” the report states. “Most retailers attributed the continued weakness to a combination of high and rising gold prices, falling disposable incomes and an increased preference for lighter-weight gold jewelry products.”

The price of gold in the local renminbi currency increased more than 9% in the second quarter to a record high, while unemployment increased in 31 of China’s main cities and consumers’ recreational expenditures dropped by 36% in the first half of 2020, according to a Chinese government report.

The China jewelry industry looks toward a surge in weddings to fuel a recovery as many couples postponed their wedding plans to the second half of 2020, the report states. In addition, October and December are traditionally peak months for weddings.

India

Indian jewelry demand declined in the second quarter by a remarkable 74% year-on-year to 44 tons, the lowest quarterly total ever recorded by the World Gold Council (WGC) quarterly report “by some margin” due to the strict lockdown imposed by the government in late March through mid-May. First half demand in 2020 was down 60% year-on-year to an all-time low of 117.8 tons.

The pandemic decimated demand during the important gold buying festival of Akshaya Tritiya. With stores shut down, the only way to purchase gold jewelry was online. “Sales were trivial in comparison with the previous year,” the report states.

As restrictions eased mid-quarter, activity picked up in select regions with a further increase in June, the report states. However, weddings and celebrations are still unable to be held and the government continues to order partial lockdowns. Discretionary spending also shrank due to concerns around the strength of the economic recovery and higher gold prices.

Jewelers are going online and are increasingly implementing omni-channel strategies to boost sales, the WGC said.

Western Countries

Gold jewelry demand in the United States, which was gradually rising in recent years, fell in the second quarter by 34% year-on-year to 19.1 tons, an all-time low based on the WGC reporting. First half demand was down 21% year-on-year to an eight-year low of 41.9 tons. Store closures because of the coronavirus “were the clear reason for the decline,” the report states. What made it worse was that the lockdown encompassed Easter and Mother’s Day, where there is an increase in jewelry purchases.

Demand collapsed in April and May, before recovering in June as stores began to open up, according to the report. The improvement was also partly attributable to consumers spending government stimulus checks on discretionary goods. Similar to the shift seen in other markets, online retailing stepped in to compensate in part for the collapse in bricks-and-mortar sales.

Meanwhile, gold jewelry demand in Europe fell to a new all-time low as second quarter demand fell 42% year-on-year to 8.2 tons. First half demand was down 29% year-on-year to 19 tons. Italy and the U.K. posted the most significant declines with both markets reporting year-on-year declines of 45% in the second quarter.

Middle East and Turkey

Second quarter gold jewelry demand in Turkey plummeted by 69% year-on-year to just 3 tons, an all-time low based on WGC reporting. Like other markets, the lockdown of jewelry retailers combined with record high local gold prices put a near stop to demand in April and May, the WGC said. June’s reopening saw the release of some pent-up demand, but the rebound was short-lived as gold prices climbed again.

Severe year-on-year losses across Middle Eastern markets resulted in a 69% drop in second quarter demand for the region, down to 13.6 tons. The UAE suffered the most drastic year-on-year decline, down 86% to 1.3 tons, as the market lockdown ended tourist purchases; while domestic demand was quashed by high gold prices, job losses and the weak economic environment.

Demand in Iran continued to deteriorate as the local rial currency lost further ground against the dollar and the pandemic added to the sanction-hit country’s economic challenges, according to the report. A 66% year-on-year drop in second quarter demand fed a 40% first half decline to 10.2 tons.

Other Asian Countries

As with other countries, lockdowns because of the global coronavirus pandemic combined with surging gold prices resulted in sweeping losses across the East Asian markets. Indonesia and Thailand suffered the largest losses in the second quarter and first half of 2020. Demand in Japan was less severely impacted than the rest of the region, the WGC said. A 40% year-on-year fall in the second quarter took first half demand down by 27% to 5.6 tons. “Quasi investment demand for heavy gold chains benefited from the rising gold price,” the WGC reports.

About E. J. McKay

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