Give me the gold! Why Middle East demand for the precious metal in the jewelry business is growing 25+ percent annually

Published November 27th, 2013 - 12:30 GMT
Regional consumer demand for gold jewelry in the Middle East grew 25 percent in 2013 alone (File Archive)
Regional consumer demand for gold jewelry in the Middle East grew 25 percent in 2013 alone (File Archive)

Consumer demand for gold jewelry worldwide grew by 20 percent for the year ending September 2013, reaching 3,757 tons and valued at $183.9 billion, the World Gold Council’s Gold Demand Trends report published this month said.

During the same time period, the report said regional consumer demand for gold jewelry has grown by 25 percent, reaching 225.8 tons and valued at $10.9 billion, with the UAE and Saudi Arabia featuring prominently.

In the UAE, gold jewelry demand has grown by 23 percent, reaching 73.1 tons worth $3.5 billion, while Saudi Arabia saw 71.7 tons of consumer gold jewelry demand worth $ 3.4 billion - up 13 percent year-on-year.

The global and regional upswing of consumer gold jewelry demand is also reflected in the expected turnout of registered hosted buyers at the upcoming Dubai International Jewelry Week to be held on Dec. 4-7 at Dubai World Trade Centre (DWTC).

Dedicated top-level buyers from Albania, Bahrain, Kuwait, Macedonia, Russia, Saudi Arabia, Turkey and Ukraine, will look to purchase the latest rough stones, precious gems and metals and finished fine jewelry from more than 360 exhibitors taking part in the four-day consumer and trade event.

Trixie LohMirmand, Senior Vice President, DWTC, which organizes Dubai International Jewelry Week, said: “Lower gold prices and growing consumer confidence has resulted in a significant increase of consumer demand for gold and jewelry, both regionally and globally. Gold and jewelry is a major contributor to the Middle East’s luxury market, and Dubai has always been at the forefront of the sector, attracting luxury consumers from around the world. This is why Dubai International Jewelry Week is such an important business networking platform – it provides an effective gateway into the high value regional market, while bringing together the world’s most prominent jewelry makers and serious international buyers.”

Jamil M. Ali Farsi, founder of Farsi Jewellers from Saudi Arabia, one of the hosted buyers at last year’s Dubai International Jewelry Week, added: “The show’s Hosted Buyer Programme is a highly-effective way to meet new and existing vendors, engage suppliers from around the world and source new products – the quality of exhibitors is always outstanding.”

Third quarter gold demand of 869t was 21 percent lower than Q3 2012,  this is due primarily to the Indian government intervention in their domestic market, and the year-on-year fall in ETF investment.

Average price of gold in this quarter was $1,326/oz, down 20 percent on Q3 2012.

Global demand for jewelry was 487t in the quarter, up 5 percent on last year. US jewelry demand increased by 14 percent - the highest third quarter jewelry demand figure since Q3 2009.

Investment in bar and coins saw robust demand, up 6 percent year on year to 304t.

There was a net outflow from ETFs of 119t, as investors adjusted their portfolios.

Net central bank purchases totaled 93t, 17 percent down on Q3 2012. Central banks have now been net purchasers of gold for 11 consecutive quarters.Demand in the technology sector was stable once again, totaling 103t, a rise of 1 percent on the same period last year. Total supply is 1,146t.

Overall demand for gold in Q3 2013 was 869 tons (t), down 21 percent on the same period a year ago. However, demand remained strong across most countries and sectors. The exceptions were gold-backed ETFs, which had net outflows of 119t this quarter, compared to 402t in Q2 2013, and India where the result of government intervention in the Indian gold market was to reduce demand by 71t this quarter.

Taking the year as a whole so far, the jewelry, bar and coin sectors are showing year-to-date increases, while technology demand remains robust. ETF investment demand is the notable exception, having weakened this year.

The strength of jewelry and bar and coin demand in 2013 to date can be seen when compared against the first three quarters of previous years. As of the end of Q3 2013, demand stood at 2,896t, 26 percent higher than the same year-to-date figure in 2012.

Far and away the largest component of global demand - was 487t in Q3 2013, compared with 462t in the same period last year, an increase of 5 percent. Demand was particularly strong in China, where the figure reached 164t, a rise of 29 percent compared to with the same period last year. Robust growth in the jewelry sector was also seen in the Middle East, Turkey and, significantly, across South East Asia, beyond China. After eight years of decline, the US jewelry market had its third consecutive quarter of growth with a shift to higher carat items – signalling the re-emergence of aspiration and luxury as key drivers of gold jewelry in the US.

Global bar and coin demand - also showed a year-on-year increase, reaching 304t, a rise of 6 percent compared to the same period last year. This takes overall investment in bars and coins so far this year to 1,252t, a rise of 36 percent compared to the first three quarters of 2012.

Marcus Grubb, Managing Director, Investment at the World Gold Council, said: “Consistent with the first two quarters of 2013, the global gold market remains resilient, underpinned by the continued shift in demand from West to East, strong demand in consumer categories and solid central bank and technology sectors”.

”The growth we are seeing in jewelry, bars and coins in particular, demonstrates once again the unique diversity of gold demand, as different sectors increase in prominence at different points in the global economic cycle, clear evidence of the ebb and flow of what is an extremely liquid market.”

The restrictions introduced by the Indian government on importing gold through official channels had the intended effect of substantially suppressing demand, with total gold consumption in India standing at 148t in Q3, compared to 310t in Q2 of this year. However, the strength of Indian demand in the first half of the year means that full year consumer demand is still on track to narrowly exceed the 2012 total. One side effect of this was that while global recycling of gold fell 11 percent compared to the same quarter in 2012, in India the recycling figure increased more than fivefold to 61t.

“The intervention of the Indian government in restricting gold imports to the country is obviously reflected in the official levels of demand this quarter, but this by no means indicates that the appetite for gold in India is waning. We have seen some increases in demand in other countries which have close links with India, some of which may be making its way back to the country through illicit channels, which have reopened in recent quarters following a long period of inactivity,” Grubb added.

For the 11th consecutive quarter, central banks were net buyers of gold, purchasing 93t. Meanwhile demand in the technology sector was stable, at 103t.

The average gold price for the quarter was $1,326/oz, down 20 percent on the same quarter last year.  In value terms, gold demand in Q3 2013 was $37 billion, down 37 percent compared to Q3 2012.

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