Report Says Rise In Jewelry Demand Last Year Likely Anomalous

The World Gold Council reported last year that jewelry demand rose in tonnage terms despite gold rising nearly 30% in the same timeframe. But, a Reuters analysis says that the rise is likely to be replaced by a more-usual decline in tonnage terms as prices keep going up.

"Higher prices tend to mean less jewelry demand," said Mitsubishi precious metals analyst Matthew Turner. "People buy less because the price has gone up, and they tend to sell more back as scrap. There is a double effect."

One market is expected to be an exception -- China. Last year China's jewelry demand rose by 14 percent, a healthy gain that was still outstripped by Chinese buying of investment products such as bars, which leapt 88 percent.

Philip Klapwijk, chairman of metals consultancy GFMS, said the jewelry chiefly being bought in China is top-quality 24-carat merchandise, much more than 18-carat.

That suggests the driver may be investment rather than the traditional use of jewelry as adornment....

There is anecdotal evidence that Chinese demand counted as jewelry is de facto investment, jewelry being bought because of shortages of gold bars. In developed economies, high gold prices have pushed down jewelry demand by double digits. Indian jewelry demand picked up the slack last year, but that demand is volatile from year to year. Over the longer term, jewelry has dropped from 75% of total demand (in 2004) to about 50% (2009.)


What's evident from the report is one category leaking into the other. Some jewelry demand is for investment, and I believe this holds true for India as well as China. On this basis, investment demand may have rose in tonnage terms for 2010.

No matter how it's sliced, the increase in overall gold demand outpaced the supply increase last year. Given gold's rise, that result certainly counts as unusual. Whether it's anomalous will have to wait for the 2011 report.