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Jewellery demand slIps 14% In 2011

old jewellery demand in India tailed off sharply in the fourth quarter, dropping 44% year-on-year to 103

tonnes, according to the recent Gold Demand Trends report of the World Gold Council (WGC).

India’s annual gold jewellery demand of 567.4 tonnes was 14% below 2010. In value terms, fourth-quarter demand of R283.6 billion was down 22% year-on-year. However, full-year demand shot up to a record R1,340.4 billion, 13% above 2010’s previous record. In the context of the local price environment, these figures serve to highlight the importance that Indians place on purchases of gold jewellery, the WGC said.

According to the report, the Diwali festival in October last year failed to lift fourth quarter Indian gold jewellery demand, and rupee weakness played a major part in the subdued quarterly activity as average local prices increased sharply over the period.

Anantha Padmanabhan, managing director, NAC Jewellers, Chennai, said, “Although the months of October and November were a little slow, most of the jewellery players were not affected too much as a result of this lean period. From December onwards, however, sales have seen steady growth. In fact, demand has been quite strong over the past couple of months, in spite of price fluctuations. Demand for gold has always been present, and people are still buying gold at all times of the year. Today, the gold business has become very competitive, moving from small-store formats to larger ones. To be in the market, one has to weigh the options of either multiplying stores or moving to a big-store format.”

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G.R. Radhakrishnan, managing director, GRT Jewellers, Chennai, added, “The World Gold Council is helping jewellers by working with them around special dates in the year that will be good sales drivers. It is also educating customers about the value and importance of gold – the rural market in particular has realised the attractiveness of gold as an investment. Although there are regional variations, the gold market is expanding day by day into smaller towns and villages.”

The situation is the same across the northern belt and Balram Garg, PC Jewellers, New Delhi, concurred, “There is still strong demand in the tier two and tier three cities; the fall in demand is actually more prevalent in big cities where diamonds are preferred. For investment purposes, people are waiting for a price correction. Demand last October was very good, but tailed off from November to early January, and then picked up again from the second half of January onwards.”

Volatility stunts growthGold price volatility was an added factor, as Indian consumers traditionally prefer to wait until gold prices stabilise, the WGC noted. The combination of high and volatile prices led consumers increasingly to demand lighter weight gold jewellery and forced the trade to react with jewellery items at lower price points, it added. Anecdotal reports suggest that only necessary basic purchases were being made, with consumers largely holding onto their cash as they wait for more opportune buying conditions.

“The steep price correction in US dollar terms over the last few months of the quarter, combined with movements in the Indian rupee exchange rate that

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Bangalore mindset

Pratap Kamath, Ceo, abharan Jewellers, Bangalore, noted, “the last quarter of 2011 was very buoyant, october in particular, as there were many auspicious gold-buying occasions such as dusherra, dhanteras and diwali. december too was very strong, due to weddings and Christmas. overall, we saw growth rates of 15-18% in the fourth quarter of 2011. macroeconomic conditions have not affected jewellery buying in this part of Bangalore – people simply love gold. gold jewellery constitutes 80-85% of our sales while diamonds make up the rest. the population of Bangalore has doubled to around 1 crore and 20 lakh, and a large part of this population growth is due to the burgeoning it segment. their high salary brackets mean they are frequent buyers of gold. the availability of systematic investment planning (siP) schemes enables people to invest in gold jewellery by paying instalments. all this helps the market remain buoyant.

“exchanging old jewellery is very popular in the south of india and Bangalore is no exception. it’s been standard at 30-35% of sales with not much variation over the years. We had an aggressive marketing push in rural parts of Bangalore, as investing in gold is a matter of great prestige for this segment of society. Whilst people in the rural segment do have purchasing options in their local area, they still like to buy from the city. one of the reasons is the collections are much better, and there is pride in buying from a big city.”

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India was by far the largest single investment market in 2011 and accounted for 25% of total bar and coin demand. The country’s demand for gold bars and coins grew by 5% to a record 366 tonnes, equivalent in value to R864.6 billion.”

saw local prices rise to new record levels during November, posed a challenge to the trade in regard to managing adequate stock levels. The fourth quarter witnessed a degree of stock-depletion among retailers, after inventories had been built up over the first three quarters of the year.

“A significant development in the domestic market occurred during the quarter: Cabinet approval of a bill making hallmarking of gold mandatory. Some industry participants have predicted that this move will underpin demand for gold jewellery by reducing consumer concerns over quality assurance. The first few weeks of 2012 also heralded an increase in the import tax on gold, from a flat rate of R300 per 10 g to 2%. Although the absolute numbers involved are minimal, there has been some uncertainty over the move which may lead to a hesitant start to 2012 in India. This is not expected to overhang the market for long, however, and trade and consumers should soon adapt,” the report stated.

Meanwhile, global jewellery demand totalled 476.5 tonnes in the fourth quarter of 2011, a 15% year-on-year decline. In value terms, demand was 5% higher at $25.9 billion, a new quarterly record. On a full-year basis, gold jewellery volume demand of 1,962.9 tonnes was 3% below 2010, showing resilience given a 28% increase in the average annual price. The value of annual gold jewellery demand grew by 25% to a new record of $99.2 billion.

Investment gathers momentum India was by far the largest single investment market in 2011 and accounted for 25% of total bar and coin demand. The country’s demand for gold bars and coins grew by 5% to a record 366 tonnes, equivalent in value to R864.6 billion. The WGC said that the price highs encouraged some substitution of demand away from jewellery and towards investment products.

Sanjiv Shah, co-chief, Goldman Sachs Asset Management India, Mumbai, said,

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“Demand for gold ETFs has seen a strong uptrend since their launch in India in 2007. Despite increasing volatility in gold prices over the past few months, gold ETFs have witnessed a 20-25% rise in volumes over the past five years. With total assets under management for all Indian gold ETFs having grown by 114% year-on-year (2010 vs. 2011), reaching R9,153 crore by December 2011, we expect continued growth through the coming months. Most Indians have a strong affinity towards gold and are looking for innovative options to bolster their investment portfolios.”

However, investment demand in India suffered a sizeable 38% year-on-

year decline during the fourth quarter, dropping to 70 tonnes. Demand in value terms was R192.7 billion, down by 14%.

“Rupee weakness drove the local price of gold up during the fourth quarter and this encouraged a degree of profit-taking among Indian investors, while others preferred to remain on the sidelines, deferring their investment purchases until prices stabilised. Although the underlying sentiment behind Indian investment demand remains positive, with bullish price expectations supporting demand, there are signs that inflation should be moderate this year, which may curb investment demand somewhat,” the report noted.

Ajay Mitra, WGC managing director, Middle East and India, said: “Despite a challenging year, India remained the largest country for gold demand in 2011, and we believe that the strong intrinsic and emotional affinity towards gold in India will continue to fuel demand over the coming year. We also look forward to increased stability resulting in Indian consumers being able to build further gold purchases into their household budgets.”

Ashish Pethe, Waman Hari Pethe Jewellers, Mumbai, added, “The past few months have been tough. It’s just not sales of gold jewellery that have been affected: car sales are in the negative for the first time, demand for white goods has gone down, and GDP numbers have been revised below 7%. In general, the economic environment is slow, and the sentiment is one of caution. This is definitely a temporary phase, and once this passes over, we expect buyers to be crowding stores again.”

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Jan - Dec 2010 Jan - Dec 2011 % Growth Tonnes R (Crore) Tonnes R (Crore) Volume ValueJewellery 657.4 118,314 567.4 134,043 -14 13Investment 348.9 62.793 366 86,464 5 38Total 1,006.3 181,107 933.4 220,507 -7 22

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India growth figures for the period January to December 2011 vs. 2010

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major boost to the overall figures from the increase in Chinese demand, which is a trend that we see continuing over the next year. It is likely that China will emerge as the largest gold market in the world for the first time in 2012. What is certain is that the long-term fundamentals for gold remain strong, with a diverse and growing demand base, coupled with constrained supply side activity.”

On the supply side, gold mine production reached a new annual record of 2,809.5 tonnes, 4% up on 2010. Recycling was down 2% year on year to 1,611.9 tonnes, which when average price rises of 28% are taken into account, indicates that near-market supplies are drying up and that consumers may be holding on to their gold in the expectation of higher prices. A record gold price of $1,895/oz was set on the London PM fix on September 5 and 6, 2011.

Saurabh Gadgil, partner, PN Gadgil Jewellers, Pune, said, “Indians still continue to invest in gold despite the price rises because they associate gold with prosperity. The Indian perception is that demand for gold will just continue to go higher as time passes. People turn to gold as a good investment option due to its stability and returns. I believe demand over the coming months will be strong. The month of February includes Valentine's Day and many weddings, an important time for gifting gold. People will then continue to buy gold during auspicious festivals such as Gudi Padwa in March and Akshaya Tritiya in April. In addition, the recent strengthening of the rupee will also translate into an increase in gold investments.”

B.S. Bhola, Bhola & Sons Jewellers, New Delhi, also believes that although the sale of gold jewellery might have dropped recently due to the ongoing financial crisis and economic pressures, India’s love for the yellow metal has not diminished. “Trust in gold has also not depreciated, but people may wait for prices to stabilise before starting to purchase again,” he concluded. n

year-earlier levels. The net result for annual demand was a 13% increase to 510.9 tonnes, equal to RMB166.7 billion.

There was also a surge in demand in Europe with the region posting its seventh consecutive annual gain to 374.8 tonnes. Germany and Switzerland were the main drivers of growth in the region as the eurozone remains in turmoil and the need for asset protection continues to be a priority, the WGC said.

Central banks continued the trend established in 2010 of being net buyers of gold. Purchases by central banks soared from 77 tonnes to 439.7 tonnes. This reflects the need to diversify assets, reduce reliance on one or two foreign currencies, rebalance reserves and ultimately protect national wealth, it added.

Marcus Grubb, WGC managing director – investment, remarked, “What we can see from these 2011 figures is that there were two main factors driving the results: Asian growth and optimism on the one hand and western desire to protect assets against uncertainty on the other. Looking particularly at Asia, there was a

Global view Global demand for gold in 2011 rose to 4,067.1 tonnes worth an estimated $205.5 billion – the first time that global demand has exceeded $200billion and the highest tonnage level since 1997. The main driver for this increase was the investment sector where annual demand was 1,640.7 tones, up 5% on the previous record set in 2010 and with a value of $82.9 billion. The pre-eminent markets for investment demand in 2011 were India, China and Europe.

India remains the largest country for gold demand at 933.4 tonnes, down 7%. In China, annual demand of 769.8 tonnes was up 20% year-on-year as a result of increases in both jewellery and investment. The largest rise was in investment, where demand of 258.9 tonnes with the value of RMB84.5 billion leaped 69%.

China’s jewellery demand increased every quarter of last year and it was the largest single jewellery market worldwide for the second half of 2011. Chinese fourth quarter jewellery demand was measured at 131.4 tonnes, slightly above

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