Q1 gold demand: down 18% from last year’s exceptional high

Gold Demand TrendsGlobal gold demand in Q1 2017 was 1,034.5t. The 18% year-on-year decline suffers from the comparison with Q1 2016, which was the strongest ever first quarter. Inflows into ETFs of 109.1t, although solid, were nonetheless a fraction of last year’s near-record inflows. Slower central bank demand also contributed to the weakness. Bar and coin investment, however, was healthy at 289.8t (+9% y-o-y), while demand firmed slightly in both the jewellery and technology sectors.

Germany and the UK led ETF inflows in Q1

Gold Demand Trends



Indian recovery offset broad global weakness to support Q1 gold jewellery demand at 480.9t.

Gold Demand Trends

  • Although marginally firmer y-o-y, jewellery demand remains soft: Q1 2016’s 474.4t was a seven-year low
  • The rising gold price was negative for demand, although one or two sharp pullbacks in gold were used as buying opportunities in some markets
  • The steady state of global demand concealed a more varied country-level picture. Gains were concentrated in India, Iran and the US, just outweighing modest losses elsewhere

Higher gold prices stifled jewellery demand

Gold Demand Trends

Gold Demand

Gold jewellery demand was broadly steady, but remains weak in the longer-term context. Demand was 18% below the 587.7t five-year quarterly average. The 9% rise in the US$ price between end-December and end-March restrained demand, although US dollar weakness meant that consumers in many markets were protected to some degree. Gold denominated in local currencies in most key consumer markets gained between 3% and 7%, although Turkey was a notable exception. The sector remains heavily influenced by India and China, which together account for over half of the market (56% in Q1).


Indian jewellery demand jumped 16% from last year’s exceptionally low level as market conditions improved after a very tough 2016. Pent-up demand from the closing weeks of 2016 was gradually released as liquidity improved. But Q1 was still weak at 92.3t – only the third quarter this decade in which demand has fallen below 100t. And the industry remains uneasy, awaiting clarity on whether the forthcoming Goods & Service Tax (GST) will result in a higher tax burden for the end-user.

The gold price held mixed fortunes for Indian jewellery consumers during Q1: rupee strength meant the domestic price rose by 3%, compared with a 9% rise in the LBMA price. The local price rose steeply in the opening weeks of 2017 before a sharp appreciation of the rupee in February and March. The pullback in the price during March was well-timed to coincide with planned purchases of gold ahead of the Q2 wedding season and the Akshaya Tritiya festival at the end of April.

The RBI continued to remonetise India’s economy, thereby easing pressure on cash-strapped consumers. By the end of March, 85% of the value of currency removed from circulation under demonetisation had been returned.1 The RBI also gradually eased temporary restrictions on the amount of money that could be withdrawn from bank accounts, aiding cash-dependent rural demand in particular. Although the effects of the policy lingered, rural spending partially recovered as cash was injected back into the system. This is evidenced by motorcycle sales, which recuperated from the December lows.

India’s economy is slowly recovering from 2016’s shock demonetisation

Gold Demand Trends

Field research shows cashless transactions gathered momentum, reflecting relative outperformance of organised retailers. The government’s push for transparency in India’s economy began to take effect in the gold market, with a gradual shift towards electronic transactions. Although cash remains vital within the rural economy, consumers are gradually adopting cashless payment methods. This has helped bolster the performance of organised retailers, such as national chain Tanishq, which reported a ‘quite significant’ recovery in Q1 demand.

The outlook for India’s gold demand is robust, but GST remains a cause of concern. The combination of the wedding season, Akshaya Tritiya festival (falling on 28/29 April) and continued remonetisation of India’s economy should support gold jewellery demand. However, the market is wary of the forthcoming decision on GST and this will likely weigh on demand until the government’s final decision, due for implementation in early July.


In China, demand for gold jewellery softened slightly, down 2% y-o-y as the seasonal uplift broadly cancelled out the impact of higher gold prices. Demand in the first quarter was 176.5t, compared with 179.2t in Q1 2016 and 5% below the five-year quarterly average of 186.4t.

Demand was strong at the start of the year. The Lunar New Year fell relatively early (late January, compared with February in recent years), meaning traditional Chinese New Year purchases were concentrated in January. This seasonal demand was boosted by 2017 having a double spring and a leap month, making it an auspicious year for weddings.2 Once the festivities were over, demand dropped off as usual – an effect that was more pronounced due to the backdrop of rising gold prices.

China’s gold jewellery industry is resourceful in combating subdued consumer demand. Gold jewellery demand has been negatively affected by the slowing economic environment as well as by changing consumer tastes. Our consumer research has shown that younger Chinese consumers want to spend their money on experiences rather than material goods.3 This is backed up by research from Agility Research & Strategy which shows that the top three priorities for affluent Asian millennials are ‘health, travel and spending time with the family’4. But they are also keenly aware of new trends and enjoy expressing themselves in ways that differ from tradition. Gold jewellery manufacturers and retailers are willing and able to tap into these trends, responding with innovation.

The 18k sector continues to grow. Manufacturers have responded by offering a wider array of designs, more intricate and modern than ‘traditional’ 24k jewellery. A new 22k

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