First annual increase since 2013 in Jewellery!
Gold jewellery demand increased by 4% globally
India’s 12% YoY improvement!
According to the WGC report, Gold Demand Trends Full Year 2017, modest Q4 growth sets the seal on a positive year for jewellery demand. Full-year gold jewellery demand increased by 4% to 2,135.5t; the first year of growth since 2013. India’s 12% YoY improvement was partly due to a very weak 2016. Demand fluctuated on changes in tax and regulation!
The US market returned to growth: encouraging economic environment helped lift demand to its highest annual total since 2010. Lower gold prices and seasonal factors in China and India aided a fourth quarter recovery. Demand for gold jewellery gained momentum in the final quarter of 2017, growing 3% YoY to a 2-year high of 648.9t.
A corresponding increase in full-year demand was primarily driven by recovery in India, the US and China. These three markets together accounted for 78t of the 82t increase in global full-year demand.
Demand Trends-India: Indian jewellery demand recovered in Q4, gaining 4% YoY to reach 189.6t, the highest fourth quarter in our 17-year series. Rupee gold prices trended lower during the quarter, which proved positive for demand.
The economic backdrop helped bank loan growth. Demand was further supported by: 1: festival demand, 2: the government’s decision to remove anti-money laundering regulation from jewellery & 3: improved rural sentiment. In contrast with Q3, when the price was in almost permanent discount, the local price traded at a small premium to the international price for much of Q4.
October started well: the Dhanteras festival – marking the start of the wedding season – coincided with a dip in prices, which encouraged demand. An added boost came when the government granted the gold market an exemption from onerous anti-money laundering measures.
The Prevention of Money Laundering Act (PMLA), which was extended to the gems and jewellery sector in August, had negatively affected jewellery demand as consumers and retailers were faced with a heavy administrative burden to prove the veracity of cash transactions. The effect was most pronounced in rural areas, where cash is widely used. The removal of the PMLA from the sector therefore had a positive impact on demand.
Rural sentiment picked up in the fourth quarter, supporting a key element of the market. Consumers in rural areas are the driving force behind Indian gold jewellery demand. Positive sentiment among this demographic is quickly felt in certain areas of the economy, the gold jewellery market being one of them.
Sentiment was vastly improved compared with Q4 2016, when these consumers were struggling with the drastic and unexpected demonetisation of the economy. A 6% increase in the minimum support price for kharif crops also helped.
Strong growth in tractor sales bears out this improvement: Mahindra & Mahindra Ltd.’s Farm Equipment Sector (the world’s largest tractor manufacturer) announced 32% YoY growth in tractor sales during November and are upbeat in their outlook. The market is becoming increasingly accustomed to the Goods and Services Tax (GST).
As foreseen in our Market Update: GST’s impact on India’s gold market, organised retailers were best equipped to transition to the GST system and this worked to their benefit as they increased their share of the jewellery market.
Looking forward, we expect a continued recovery in demand as the market increasingly accepts, and adapts to, GST. And the relative outperformance of chain stores and organised retailers is, in our view, likely to be a key feature of this recovery.
