(IDEX Online News) – Demand for gold for jewelry dropped 3 percent in the first quarter of 2015 according to the World Gold Council (WGC). While demand fell to 600.8 tons, it remains above the five-year average of 570.3 tons.

 

The largest decline came from China, where demand fell by 23 tons, while demand increased by 27 tons in India.

 

The organization said the 22 percent increase in Indian jewelry demand resulted more from the unusual weakness in Q1 2014 from any real strength in the first quarter of this year. Demand stood at just 3 percent below its five-year quarterly average of 154.7 tons.

 

Expectations that the government would reduce import duties on gold meant demand was subdued in the first two months of 2015. After the release of the budget, in which duty remained unchanged, imports doubled in March as the trade –built stocks ahead of the key jewelry buying festival of Akshaya Tritiya. Following the festival, retailers reported growth of 10-15 percent compared to last year.

 

China’s jewelry demand dropped 10 percent during the quarter, but the WGC said that the longer-term uptrend remains intact. Factors affecting demand included slowing GDP growth, strengthening stock markets and a cautious outlook for gold prices. This combination meant that demand around Chinese New Year, traditionally a popular time for buying and gifting gold jewelry, was relatively restrained.

 

In addition, the government’s anti-corruption drive is also affecting demand although the WGC said 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.

 

In terms of demand, 18-karat gold with a greater design element, particularly appealing to the younger generation of Chinese consumers, has gained market share. Twenty four-karat Chuk Kam gold still accounts for the vast majority of demand, but has lost some ground over the last year with 18-karat gold now accounting for around 12 percent of the gold jewelry market in tonage terms (down from a peak of around 20 percent towards the end of the last decade).

 

In Hong Kong, jewelry demand was down 26 percent owing to a stronger anti-corruption campaign than that seen on the mainland. Stock-building in Hong Kong was muted following the regional holiday and retailers are shifting their focus to lower karat, higher margin product.

 

Measures to limit the number of trips Shenzhen residents can make to Hong Kong were introduced in April, which may dampen down demand in the second quarter.

 

In the Middle East, the markets were generally weak. Demand in Egypt, which was hit by political unrest, fell by 31 percent to its lowest level since Q2 2012, to nine tons.

 

Demand in Dubai was relatively resilient, with a decline of 8 percent. 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.

 

In Turkey, demand responded to the local price environment, which was driven by currency fluctuations. The jump in local prices to near-record levels fed through to a 28 percent drop in gold jewelry consumption.

 

There was better news in the US, where demand increased by almost one ton, the third consecutive year-on-year rise in Q1 jewelry demand (Chart 5). The WGC said stocks were built during the quarter and imports are likely to outstrip demand during the next couple of quarters as inventories are further replenished.

 

US consumers continued to express a preference for higher karat jewelry. However, they were cautious in their approach to spending and the trade views the prospects for the remainder of the year with guarded optimism. Rising household wealth and economic growth provide support, but conservative consumer attitudes towards spending and a general lack of innovation in the design and market are potential headwinds.

 

Finally, the UK market continued to mirror the trend of the US: demand there also grew by 4 percent. However, European markets as a whole were weaker, amid stronger euro prices and mixed economic signals. Regional demand dipped by 2 percent to 12.5 tons.