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Gold Price Hike Dampens Jewelry Demand

Feb 5, 2017 11:07 AM   By Rapaport News
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RAPAPORT... A bounce in gold prices and sluggishness in India and China drove global jewelry demand last year to its weakest level since 2009, according to the World Gold Council (WGC).

Global demand fell 15 percent to 2,041.6 tonnes in 2016, a seven-year low, the WGC said in its annual market report.

Indian demand for gold jewelry ended the year 22 percent lower, partly because the price of the yellow metal jumped 8 percent, the council explained. A nationwide jewelers’ strike in the first quarter also contributed to the weakness, as did the government’s decision in November to take 86 percent of rupee notes out of circulation as part of a surprise demonetization policy.

“The announcement caught the market off-guard,” the report said. “Demand spiked in the few days immediately following the move. In a frantic bid to exchange now-obsolete banknotes, consumers rushed to buy gold. This rush drained retailers of their stocks, before a severe liquidity squeeze took hold.”

Chinese demand slid 17 percent across the year as retail sales during the fourth-quarter festive season lagged expectations. Sales during the October Golden Week were disappointing, the report said. In fact, overall demand over the October-to-December period dropped 13 percent.

“Younger Chinese prefer to spend their income on experiences such as travel, rather than on material things, including gold jewelry,” the WGC pointed out. “That trend certainly seemed to play out in October. As the number of domestic tourists soared from the previous year, sales of gold jewelry slumped.”

The U.S. market performed better, with demand slipping just 1 percent. Demand improved in the first six months but this was outweighed by a weaker second half amid uncertainty over the presidential election campaign.

Gold prices rebounded in 2016 from a trough of $1,057 per ounce in November 2015, after diving from a peak of $1,884 per ounce in September 2011, according to data from Kitco. Gold ended last week at $1,220 per ounce.
Tags: China, Demonetization, gold, gold prices, Golden Week, holiday sales, India, Jewelry, Rapaport News, retail, WGC, World Gold Council
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