Gold demand trends q3 2017 jewellery world gold council electricity lesson plans for 5th grade

####

The H1 recovery in Indian jewellery demand was derailed in Q3 by regulatory intervention. After three consecutive quarters of growth, demand fell by 25% y-o-y to 114.9t in the third quarter. The introduction of the 3% Goods and Services Tax (GST) at the beginning of July was a contributing factor. As we noted in Gold Demand Trends Q2 2017, a large swathe of Indian consumers had pre-empted the introduction of GST by bringing forward their gold purchases to Q2. This left demand a little flat at the beginning of July.

The jewellery trade also struggled with the new tax system. While large, organised retailers, with their sophisticated accounting and inventory-management systems, were well equipped to cope with the transition to GST, smaller, unorganised retailers faced difficulties.

Onerous anti-money laundering regulation added to the industry’s woes. Already suffering from weaker sentiment, the jewellery industry suffered a further blow when the government brought the gems and jewellery industry under the umbrella of the Prevention of Money Laundering Act (PMLA) in late August. The Act placed an administrative compliance burden on retailers and consumers alike, requiring ‘know your customer’ (KYC) documentation for all jewellery transactions with a value of Rs50,000 (roughly equivalent to US$750) or above. Demand therefore remained under pressure, particularly in rural India, where cash transactions are the norm, as consumers shied away from providing official ID to support gold purchases.

Recognising the difficulties placed on the industry by the regulation, the government lifted the PMLA from the gems and jewellery sector in early October. This decision was well-timed, coming just ahead of Diwali. Consumer sentiment improved dramatically, although reports suggest only average festive-season buying due to the continuing obstacle of GST.

Monsoon sent mixed signals for demand. Total monsoon rainfall, although broadly normal (around 5% below the long-term average), was distributed unevenly across the country. Inconsistent rainfall during the kharif crop-sowing season, together with prolonged monsoon rains that inflict damage on these crops, have the potential to impact rural incomes in some areas. 1 This could have a knock-on effect on jewellery demand in these areas over coming quarters, although the effect will be mitigated by aid measures. The government raised the Minimum Support Price (MSP) for kharif crops and waived farm loans to the tune of Rs800bn (US$12bn) in the key food-producing states of Maharashtra, Punjab and Uttar Pradesh.

There are reasons for cautious optimism. Our view remains that the market will continue to adapt to GST, allowing demand to recover to a certain extent. Inventory levels in the market are healthy and the removal of the PMLA legislation should encourage demand. But this positive view will likely be tempered by the impact of the uneven monsoon rainfall distribution.

Demand for gold jewellery in mainland China recovered to 159.3t, up by 13% y-o-y after 10 consecutive quarters of decline. Year-to-date demand (472.4t) is in line with the same period of 2016 (465.5t). But from a longer-term perspective the market remains weak: demand is 15% below the 5-year quarterly average of 187.1t.

Holiday purchases lifted demand, albeit from a very low base. The first green shoots of recovery in the market were witnessed around late August, with gifting of gold jewellery for Chinese Valentine’s Day. This was followed by the Autumn Festival – a time for family reunion and an occasion when some parents buy their children gold jewellery for its perceived ability to bring happiness and good luck.

Leading retailers reported decent growth in Q3: sales were up both in terms of value and volume, and new store openings resumed after a period of stagnation during 2015-16. These openings were largely concentrated in the Tier 3 and Tier 4 cities. Competition is picking up: branded, national retail chains are becoming more aggressive and this could lead to a period of consolidation. Reports from the Shenzhen Jewellery Fair were positive: both visitor numbers and sales exceeded expectations and retailers were seen replenishing inventories ahead of the Q1 Chinese New Year festive buying season, after a prolonged period of destocking.

Although plain, 24 carat gold still dominates the market, demand was lacklustre as consumers continued to show preference for small, well-designed pieces. Sales of ‘chuk kam’ were flat and disappointing, even compared with 2016’s low base. 2 Growth was concentrated among 18 carat jewellery, 24 carat 3D ‘hard-gold’ and piece-priced premium products, as consumers continue to favour innovation and differentiation over tradition. And gold continues to face stiff competition from travel, entertainment and dining for a share of consumers’ budgets. China’s National Tourism Administration estimated that over 700mn Chinese travelled during the recent October week-long National holiday. Domestic travel revenue during the holiday was estimated at 584bn yuan (approx. US$90bn), an increase of around 13% from 2016.

But there are reasons to expect that the market may establish a base: efforts to improve quality control in online purchases may support the market in the long term. Aiming to remain relevant to consumers (especially young millennials, who are twice as likely to shop online as Chinese consumers in general), 3 Chinese jewellers are eagerly venturing into the cyber-retail space and trying to enhance quality assurance. In September, Alibaba, China’s largest e-commerce platform, reached an agreement with the National Gemstone Testing Center (NGTC) that all jewellery sold on Tmall and Taobao would carry its certification of quality. Jewellers such as Chow Tai Fook and CHJ are expected to be among the first to adopt this practice.

All references to LBMA Gold Price are used with the permission of ICE Benchmark Administration Limited and have been provided for informational purposes only. ICE Benchmark Administration Limited accepts no liability or responsibility for the accuracy of the prices or the underlying product to which the prices may be referenced. Other third party content is the intellectual property of the respective third party and all rights are reserved to them.

The use of the statistics in this information is permitted for the purposes of review and commentary (including media commentary) in line with fair industry practice, subject to the following two pre-conditions: (i) only limited extracts of data or analysis be used; and (ii) any and all use of these statistics is accompanied by a citation to World Gold Council and, where appropriate, to Metals Focus and Thomson Reuters, as their source.

This information is not a recommendation or an offer for the purchase or sale of gold, any gold-related products or services or any other products, services, securities or financial instruments (collectively, “Services”). Investors should discuss their individual circumstances with their appropriate investment professionals before making any decision regarding any Services or investments.

This information contains forward-looking statements, such as statements which use the words “believes,” “expects,” “may,” or “suggests,” or similar terminology, which are based on current expectations and are subject to change. Forward-looking statements involve a number of risks and uncertainties. There can be no assurance that any forward-looking statements will be achieved. We assume no responsibility for updating any forward-looking statements.