Industry
Poised for an Uptick in Demand
Activity slowed to a crawl at trading centers during the international holidays, but consumers showed strong signs of buying jewelry.
By Shuan Sim
 | | A Chinese employee displays gold necklaces at a jewelry store in Lin’an city, Zhejiang province in east China. Photo: Imaginechina via AP Images |
Following the Hong Kong Jewellery & Gem Fair in September, orders from manufacturers resumed in India, Israel, Belgium and Hong Kong as polished production was ramped up ahead of Diwali, the Jewish holidays and China’s National Day in October. Sentiment among wholesalers was generally positive, even if holiday order volumes were lighter than usual. The midstream became quiet as the holidays rolled around and retail sales shone as retailers, especially in China, upped their marketing for the period to great success. From October 1 through 13, polished prices remained fairly stable. The RapNet Diamond index (RAPI™) for 1-carat diamonds slipped 1.1 percent while 3-carat diamonds gained .8 percent (see RapNet Diamond Index [RAPI™] chart in slideshow). The polished market was squeezed by relatively high rough prices and suppliers preferred to delay sales rather than suffer losses.
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The holidays resulted in a seasonal reduction in rough buying, but overall sales in 2016 were still higher than in 2015. De Beers sold $485 million of rough diamonds in its eighth cycle of 2016, according to provisional figures from the mining company. “Our rough diamond sales were slightly ahead of expectations during the cycle, given the normal seasonal demand patterns, the shorter than usual period between sights seven and eight, and the forthcoming holidays in some of the major diamond cutting centers,” said Bruce Cleaver, CEO of De Beers Group, in a statement. He pointed out that the midstream-trading environment has improved year on year during the eighth cycle in October, 2016. According to Rapaport News estimates, sight sales for the eighth cycle in 2016 jumped 57.5 percent year on year from $308 million in 2015. Sales slipped 24.1 percent from $639 million for the seventh cycle in 2016. (See De Beers Sight Values chart in slideshow)
Speculations that the European Central Bank (ECB) would scale back its $10.9 billion monthly bond purchase program and an expected U.S. rate hike in December have led gold prices to fall by over 3 percent to $1,283.30 per ounce on October 4, 2016, reported the World Gold Council (WGC). Consumer interest in acquiring gold products picked up following the price decrease, led by countries in the Middle East. The WGC report added that there could be a swell of demand, especially in India during Diwali and the wedding season, as consumers appeared to have been holding off purchases in previous months. The price of gold dipped below $1,300 per ounce for the first time since it crossed that threshold during the Brexit announcement on June 24, and it hit $1,309.7 per ounce on June 28 (see Gold Prices Since Brexit chart above). Despite the price drop, gold remains one of the best-performing asset classes in 2016, according to the WGC report (See Top 5 Asset Classes by Returns chart below). A 7 percent decrease in gold prices in third-quarter 2015 saw a surge in demand for jewelry, gold bars and coins and the recent lowered prices might spur similar buying. Demand for gold as an investment class in India had been dampened as consumer confidence remained low amid volatile gold prices, reported Indian jewelry and watch manufacturer Titan Company in its Q2 update. However, the WGC highlighted that the November 2015 launch of the Indian Gold Coin, a sovereign gold coin initiative by Narendra Modi, India’s prime minister, had begun to spur demand for gold and gold products, turning the slump around. “As distribution expands, the Indian Gold Coin will emerge as the preferred form of investment gold in India, as well as for purchases during festivals and for gifting on special occasions,” said Somasundaram PR, managing director of WGC India.Article from the Rapaport Magazine - November 2016. To subscribe click here.
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