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India's growth in gold jewellery demand was high in the first quarter of 2015

According to the World Gold Council, a significant rise in gold demand in India for jewellery was not enough to offset a 3% decline in total global gold jewellery demand in the first quarter of 2015.

Global demand for gold dipped by 1% to 1 079.3 t in a generally quiet 2015 first quarter, reflecting the on-going weak gold price.

While a lot of factors contributed to this flat-lining statistic, one of the biggest fluctuations was in gold jewellery demand. Despite the significant demand increase in India, the decline in demand from China (mostly) resulted in a modest downtick in overall jewellery demand.

Demand for jewellery specifically equated to 600.8 t, a drop of 3% in the first quarter, but a level to which it has adhered reasonably firmly since Q3, 2013. At these levels it still holds above a five-year average of 570.3 t.

At a country level, the largest decline came from China (-23 t) while India added over 27 t year-on-year (22% increase). The impact of these two key markets is illustrated by removing them from the global total: jewellery demand excluding China grew 1% year-on-year, while removing India from the total yields a 9% decline. The extent of this impact confirms the importance of both markets to global consumer demand.

Indian ‘recovery’ a reflection of weak year-earlier demand

A 22% increase in Indian jewellery demand was more a reflection of unusual weakness in the year-earlier period than any particular strength in Q1, 2015. The first quarter of last year saw a combination of factors discourage jewellery purchases: import curbs were in full force; approaching government elections created an atmosphere of uncertainty; and temporary restrictions were placed on free movement of cash and assets such as gold.

In comparison, conditions in the most recent quarter were far more encouraging, with demand just 3% below its five-year quarterly average of 154.7 t.

Demand was muted in January and February – particularly at the wholesale level – as there was some expectation that the government would reduce import duties on gold. Ahead of its February budget, the government removed the ban on gold coin imports, but the budget itself kept import duties intact. Once confirmation was received that the duty would remain unchanged, gold imports doubled in March.

But the outlook for the sector is healthy, particularly given upward revisions to GDP growth. And demand during the Akshaya Tritiya festival was buoyant, with retailers reporting growth of around 10-15% in sales over last year.

One caveat to bear in mind is that the unseasonal rains and hailstorms that hit some parts of the country in late March and early April may undermine some elements of rural demand. However, rural demand remains robust and the crop damage caused by the early rainfall should not translate into a significant drop in Indian demand over the course of the year.

China jewellery demand down 10% but longer-term uptrend remains intact

In China, gold jewellery came under pressure from a combination of slowing GDP growth, rallying stock markets, and a cautious outlook for gold prices.

Against this background of factors, Chinese New Year – traditionally a popular time for buying and gifting gold jewellery – was relatively restrained.

Slower GDP growth dampened consumer sentiment and jewellery demand weakened accordingly. The government’s anti-corruption drive continues to restrain demand, although the bulk of the effects of this policy have already been felt and should have a minimal impact on year-on-year comparisons going forward.

Despite the year-on-year decline in Q1, the longer-term rising trend remains firmly intact.

Middle Eastern markets generally weak; Egypt hit by political unrest

General weakness across the Middle East was concentrated in Egypt, where domestic unrest flared up in January. As a result, gold jewellery demand fell by 31% to its lowest level since Q2, 2012. At 9 t, this was more in line with average levels of demand during the worst of the country’s political turmoil.

Demand in Dubai was relatively resilient, with a minor decline, compared to the wider region, of 8%. Akshaya Tritaya is gaining traction in the market as a gold-buying occasion, catering to the expat Indian community. This emerging trend has positive implications for future demand given the size of the Indian population.

Demand in Turkey responded to the local price environment, which in itself was driven by currency fluctuations. The jump in local prices to near-record levels fed through to a 28% drop in gold jewellery consumption.

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