A scene at the Dubai Gold Souq. Image Credit: Gulf News

Dubai: Burdened by higher gold prices, global shoppers just were not into jewellery last year as demand fell to a seven-year low to total 2,041.6 tonnes, according to World Gold Council’s update issued Friday (February 3).  This is 15 per cent down from the 2015 levels.

Even a late fourth quarter upturn in consumer demand – when prices had taken a dip following the US Presidential elections – was not enough to salvage the full-year jewellery volumes. (And despite the surge during the better part of November and December, actual fourth-quarter jewellery sales ended up 5 per cent lower than in 2015.) High gold prices impacted on buyer sentiments, and at the end of the year was 8 per cent up on the corresponding 2015 level. It could have been even worse from a consumer perspective – at the end of last September, the price was 25 per cent up on 2015. 

Retailers in India and China felt the strain of lower demand, with the two markets making up nearly 80 per cent of the 347 tonne decline last year. The projections for the immediate future suggest that an immediate turnaround is unlikely, especially in India.  “The overall tax burden (on gold and jewellery retail sales) is quite heavy and certainly plays against further innovation,” said John Mulligan, Head of Member and Market Relations at London-headquartered WGC.

“The (changes in) duties during the first quarter and the demonetization decision in the fourth were major disruptions to demand. In the longer term, it could turn a little more positive when the new currency notes have wider circulation and rural incomes improve as a result of good monsoons.

“But the question is when will gold demand start seeing the benefits.”

From a bullion perspective, however, last year ended in a net positive. Global demand inched up 2 per cent to 4,308.7 tonnes – enough to reach a three-year high. In 2015, it was 4,215.8 tonnes. 

As has been the case right through the better part of the year, institutional investors and exchange-traded funds had a big say in propelling the demand. Annual inflows into ETFs reached 531.9 tonnes - the second highest tally on record. (But there were some selloffs during the fourth quarter, a factor that played into the yellow metal’s price softening during the period.) But central banks mindset on gold was more in tune with the retail consumers – at 384 tonnes, their consumption was the “lowest since 2010”, according to WGC data. “Net purchases (at 383.6 tonnes) were 33 per cent lower than 2015, due in part to increased pressure on foreign exchange reserves. Despite this, 2016 was the seventh consecutive year of net purchases by central banks.”

And if retail shoppers were downbeat on stocking up on jewellery, they did not have any such qualms in picking up gold coins and bars. And it all seemed to coalesce around the fourth quarter, for the best run since Q2-13. And it was not just a trend in the key gold retail market such as China – shoppers in the US and Germany were getting into the act.

“Annual bar and coin demand was 1,029.2 tonnes, dipping just 2 per cent,” the report says. Demand was exceptionally soft up until the fourth quarter, when investors took advantage of lower prices in October and November.”

European bar and coin demand ended 2016 at 196 tonnes, with a clear rebound recorded in Q4, with Germany, Switzerland and Austria driving the gains. Demand in the US was 93.2 tonnes, the highest since 2010.

According to Mulligan, “With the price drop in Q4, there was a lot of bargain hunting in bars and coins.”

But the pattern of retail buyers feeding into bar and coin demand was not uniform across regions – in the Middle East it fell to its lowest level on record - 18.1 tonnes. "Weak currencies, high local prices and an oil price driven economic slowdown weighed on demand across the region,” WGC reports.