Indian, Chinese Consumers Surprised By Higher Gold Prices – WGC

By Kitco News

Thursday August 11, 2016 09:54

(Kitco News) - Although investor demand for gold hit record highs in the first half of the year, consumers, particularly in India and China who predominantly buy jewelry, were squeezed out of the market, according to the latest report from the World Gold Council. 

In its second-quarter Gold Demand Trends report, the WGC listed a 14% drop in global jewelry demand to 444.10 tonnes, compared to the 513.7 tonnes of gold consumed in the second quarter of 2015. According to reports, jewelry demand has declined to its lowest point in six years. In its report, the WGC described global jewelry demand as “anemic.”

In regional markets, the biggest decline was seen in the Middle East as gold demand totaled 57.4 tonnes, down 20% from 72.2 tonnes during the same period last year. India’s decline was also significant as demand fell to 131 tonnes, down 18% compared to 159.80 tonnes seen in the second quarter of 2015.

Chinese demand, which was a pillar of strength during the three-year bear market, saw consumer gold demand of 183.7 tonnes, down 14% compared to 214.1 tonnes reported in the second quarter of last year.

Despite some optimism that these markets will bounce back in the second half of the year, the WGC has lowered its demand forecast for both India and China for this year. The organization expects India to consume between 750 and 850 tonnes, down 100 tonnes from the previous forecast. Chinese demand is expected to be around 850 to 950 tonnes this year, down 50 tonnes from the previous forecast.

Weaker demand in India was not surprising as the WGC noted that the market suffered because of the national jewelers’ strike, which ended in mid-April.

“Consumers were unprepared for the huge jump in the gold price when the market reopened,” the council said. “Consumers were not only put off by the high cost, but also by the belief that such a price level would prove only temporary. Aside from essential purchasing and gifting around Akshaya Tritiya, demand was largely put on hold awaiting lower prices as a buying opportunity.”

However, in an interview with Kitco News, Juan Carlos Artigas, director of investment research at the WGC, said that the WGC is expecting demand to pick up in the second of the year ahead of the wedding seasons and a better monsoon season, which is expected to boost incomes in rural areas.

“Once consumers get used to higher prices they will jump back into the market,” he said. “We have seen strong demand at even higher price levels so that isn’t a major deterrent for some consumers.”

The WGC also noted that higher prices during a period of economic weakness was also a significant barrier for Chinese consumers.

“The relatively high volatility in the gold price proved to be off-putting for many who were concerned that the swift price rise may just as quickly be reversed,” the report said. “The broader background to the slow jewelry environment was China’s continued general economic slowdown.”