• Surge in Gold Prices: Gold market has seen unprecedented price increases, negatively impacting jewellery demand
• Consumer Behaviour Shift: Consumers are opting to exchange old gold for new jewellery rather than making new purchases
• Investment Resilience: Despite weak jewellery sales, investment demand for gold remains strong

Harare- The gold market has experienced a remarkable rally since the beginning of the year, with prices repeatedly hitting new all-time highs.

While this surge has been a boon for investors, it has cast a shadow over the retail demand for gold jewellery, creating a complex dynamic in the industry. 

Anecdotal reports from key gold markets, such as India and China, indicate a sharp decline in jewellery demand in January, with the weakness persisting into February.

The primary driver of this downturn is the steep rise in gold prices, which has made jewellery less affordable for the average consumer.

Wedding-related purchases, a significant driver of gold jewellery sales, have also been subdued. Many consumers appear to have front-loaded their purchases during a price dip in November, leaving little room for fresh buying in the current high-price environment. 

Instead of making new purchases, consumers are increasingly opting to exchange old gold for new jewellery.

This trend reflects a cautious approach to spending, as buyers seek to minimise their outlay while still acquiring desired pieces.

The surge in gold prices has prompted many consumers to sell old gold items, capitalising on the opportunity to lock in profits.

This behaviour has further dampened demand for new jewellery, as consumers prioritize liquidity over acquisition. 

The slowdown in jewellery demand has had a ripple effect on retailers, who are now reluctant to restock inventory.

With sales dwindling, retailers are finding it increasingly difficult to meet payment terms with manufacturers, leading to a liquidity crunch within the industry.

This has created a challenging environment for both retailers and manufacturers, as they navigate the dual pressures of weak demand and rising costs. 

While jewellery demand has faltered, investment demand for gold has remained robust.

Investors continue to show strong interest in gold bars and coins, driven by expectations of further price increases.

The precious metal's status as a safe-haven asset has been reinforced by ongoing economic uncertainties, including inflationary pressures and geopolitical tensions.

This has kept investment demand on a steady course, even as retail demand for jewellery weakens. 

The fourth quarter of 2024 cemented what had already been a challenging year for global gold jewellery demand, as record-high gold prices continued to weigh heavily on affordability.

2024, Q4 Trends: Rise of India, Fall of China

Demand in Q4 fell by 12% year-on-year to 547 tonnes, bringing the annual total down to 1,877 tonnes, an 11% decline compared to 2023. The relentless rise in gold prices throughout the year made it increasingly difficult for consumers to purchase jewellery, leading to a significant drop in volumes.

This weakness was widespread, though some regions fared better than others. India, for example, demonstrated relative resilience with only a 2% year-on-year decline, while China experienced a steep 24% drop in demand.

The full-year figures highlight the dramatic impact of gold’s price performance on jewellery demand.

Excluding the COVID-ravaged year of 2020, when demand plummeted below 1,400 tonnes, 2024 marked the lowest level of gold jewellery demand since 2009.

However, while volumes fell sharply, the value of jewellery demand reached a record high of $144 billion, up 9% year-on-year, reflecting the elevated price of gold.

This contrast reflected the dual nature of the market: fewer consumers could afford to buy gold jewellery, but the higher price per unit drove the overall value to unprecedented levels.

The Q4 picture mirrored this trend, with global demand sinking to a four-year low for the quarter, while the value of demand hit a new record of $47 billion.

China, traditionally one of the largest gold jewellery markets, was the primary contributor to the global decline in demand. For the second time in three years, China ceded its position as the world’s largest gold jewellery market to India.

Despite a seasonal uptick in Q4 demand, the year-on-year comparison revealed a sharp decline. Full-year demand in China fell to 479 tonnes, 26% below the 10-year average and 10% lower than even the COVID-affected year of 2020.

The challenging economic environment in China played a significant role in this downturn. Poor consumer confidence, declining income growth, and soaring gold prices created a perfect storm that deterred jewellery purchases.

The retail sector faced significant headwinds, with many stores closing throughout the year as demand weakened.

In contrast, India’s gold jewellery market showed remarkable resilience, with only a modest 2% year-on-year decline in demand. This relative stability can be attributed to cultural factors, such as the enduring significance of gold in weddings and festivals, as well as consumers adapting to higher prices by exchanging old gold for new jewellery.

However, even in India, the high price of gold acted as a deterrent for many buyers, particularly in rural areas where income growth has been sluggish.

The global gold jewellery market in 2024 was a story of contrasting dynamics. While the soaring price of gold dampened consumer demand for jewellery, it simultaneously drove the value of demand to record highs.

This divergence shows the challenges faced by the jewellery industry, particularly in price-sensitive markets like China, where economic pressures exacerbated the impact of high gold prices.

Analysis: A Tale of Two Markets 

The current gold market presents a tale of two distinct segments: jewellery and investment. The jewellery market, which is highly price-sensitive, has borne the brunt of the price surge.

Consumers are either deferring purchases, exchanging old gold, or selling their holdings to capitalize on high prices. This has created a challenging environment for retailers and manufacturers, who are grappling with liquidity issues and weak sales. 

On the other hand, the investment market has remained resilient, with investors viewing gold as a reliable store of value in uncertain times. The anticipation of further price increases has fueled demand for bars and coins reflecting gold's enduring appeal as a hedge against economic instability. 

The divergence between jewellery and investment demand highlights the dual nature of gold as both a consumer good and a financial asset.

While the jewellery market may continue to face headwinds in the near term, investment demand is likely to remain strong, supported by macroeconomic factors and investor sentiment. 

For the gold industry, the key challenge will be navigating this bifurcated demand landscape. Retailers and manufacturers may need to adapt their strategies to address the liquidity crunch and shifting consumer behaviour.

Meanwhile, investors are likely to remain focused on gold's long-term value proposition, ensuring that the precious metal retains its luster as a cornerstone of diversified portfolios. 

Therefore, while the price surge has taken some of the shine out of jewellery demand, it has reinforced gold's appeal as an investment asset.

Equity Axis News