Jewellery Demand Declines, But Gold Price Trends Hold Firm
Wed Mar 27 2024
Gold prices have shown remarkable resilience over the past decade, steadily climbing from around $1,200 per ounce in 2009 to over $2,000 per ounce in 2020. The upward price trend comes despite declining demand from the jewellery industry, historically one of the largest consumers of gold.
Read on to learn what essential factors now influence gold price trends in jewellery's stead.
Falling Demand from the Jewelry Industry
For centuries, jewellery fabrication accounted for over 50% of annual gold demand. But since 2015, it has fallen behind investment and central bank purchasing. From a peak of 2,540 metric tons in 2013, annual gold jewellery demand declined to only 1,411 metric tons by 2019.
What explains the reduced appetite for gold jewellery across much of the globe? Ultimately, it comes down to cost. As gold prices ascend into record territory, retail jewellery becomes less affordable for many consumers. This leads to substitution and downsizing to cheaper alternatives like silver and gemstone pieces.
Economic downturns often lead to decreased demand for expensive gold jewellery, as shoppers avoid luxury purchases during financial uncertainty. The COVID-19 pandemic has further exacerbated this trend, resulting in a global recession. Further, demographic and cultural shifts play a role. Younger generations often favour new metals and designs over traditional gold jewellery.
And in some countries like China and India, exponential economic growth means buyers have more discretionary income to spend on lifestyle offerings beyond jewellery.
Investment and Central Bank Purchasing Offsets Declines
If jewellery demand has fallen significantly since 2013, what explains gold's sustained global price increases? The answer lies on the investment side of the market. As an asset class, gold has offered strong returns over the past decade, rivalling stocks. This has a low correlation to other assets, making it a superb portfolio diversified.
Central banks globally have been net buyers of gold since 2010, seeking inflation hedges and crisis protection. In recent years, Russia, China, India, and Turkey have made prominent additions to official gold reserves. The rally past $2,000 per ounce coincided with record central bank purchases in 2020.
Gold's investment appeal translates to the retail level as well. Gold-backed exchange-traded funds (ETFs) offer easy access for individual investors. Total global gold ETF holdings have multiplied seven-fold over the last 15 years to exceed 3,500 metric tons worth some $240 billion. Fund inflows accelerate when stock markets turn rocky as investors flock to gold stability.
On the institutional and high net worth side, hedge funds and other asset managers pursue gold for its diversification and risk-hedging attributes. While jewellery buyers baulk at ever-higher prices, investment managers often take advantage by adding to positions. When jewellery fabricators sell back scrap gold, these investment firms eagerly buy up inventory.
Technology and Industrial Demand Provide Price Support
Another source of persistent gold price trends through up-and-down price cycles is the technology and industrial sectors. An extremely conductive and durable metal, gold is utilized in electronics, medicine, aerospace, glass production, and more. Modern life depends on gold-powered devices and applications that touch nearly every sector.
Gold constitutes a small but essential production input for businesses and producers operating in these vital economic areas. Continued industrial and technological demand supports gold's global price floor. Additionally, most industrial applications centre on gold's physical properties rather than style preference. This means demand changes little based on shifting prices or consumer whims.
With gold price trends demonstrating impressive resilience and reaching record highs over $2,000 per ounce, many investors consider whether now presents an excellent opportunity to buy gold. The outlook remains positive for several reasons.
Most analysts expect central banks to continue aggressive gold purchasing as a diversification strategy. And as long as inflation concerns, currency risks, or market volatility persist, institutional investment demand should also rise. While jewellery demand may continue to slide, industrial and technology applications support a stable demand baseline. Electronics and aerospace rely on gold's specialized properties and serve to expand high-tech manufacturing sectors.
Finally, gold's role as a crisis hedge and store of value grows in relevance amidst recent pandemic turmoil. Adding precious metals exposure can stabilise portfolios vulnerable to market or economic declines. In moderation, gold warrants consideration to help endure financial storms. Gold can provide disaster insurance and inflation protection at 5-10% of a portfolio; few other assets match. This makes taking some positions appealing at current prices from a risk management perspective.
Just don't expect ultra-high returns from gold itself. The metal serves best as a long-term defensive allocation. Despite market selloffs that batter stocks, this unique risk-dampening strength retains value without cash flows or yield, helping mitigate crashes that jeopardize retirement timelines.
Summing It Up
Rising prices typically dampen demand for discretionary products like jewellery. But gold has defied this trend and has been appreciated for over a decade despite steadily sliding jewellery sales. Buoyed by solid investment interest and steady industrial/technology demand, gold price trends continue rising even without jewellery acting as the prime buyer. This highlights gold's unique dual identity, bridging luxury commerce and hard asset portfolio diversification.
Whether the next decade brings further declining jewellery demand remains to be seen. But with investment and industrial usage locked in, gold price trends look positioned to keep shining. As a high-value material with a finite supply, gold stands to retain its resiliency against inflationary pressures and market turmoil.
For investors and jewellery enthusiasts, gold clearly merits continued attention throughout all business cycles.
Source: https://www.markets.com/