Indians ‘spend’ less but ‘invest’ more in Gold

Rising gold prices dampen jewellery demand in India. Statistics indicate that gold remains a popular investment tool for Indians but their affinity towards gold jewellery has been negatively impacted due to the exorbitant price past year. In 2022, India consumed 600.6 tonnes of gold as jewellery, which reduced to 562.2 tonnes in 2023.

On the contrary, gold as an investment tool picked up in India as investor demand for sovereign gold bonds attracted record-high subscriptions. The December tranche of Sovereign Gold Bonds hit a peak of 12.1 tonnes, valued at ₹7,505 crore.

The unprecedented rise in Gold price has resulted in China ousting India in demand for gold jewellery as per the World Gold Council. In 2023, China consumed 630.2 tonnes of Gold as jewellery as compared to 570.8 tonnes in 2022.

Reeling under the aftermath of the COVID-19 pandemic, 2022 was a bad year for gold bars and coins for both China and India but both countries demonstrated an upsurge in bar and coin consumption in 2023. The bar and coin consumption in China grew by 28% yoy to 280 tonnes while India grew 7% yoy to 185 tonnes, says the report.

Gold as jewellery behaves quite differently from Gold as Bars and Coins, despite being purchased by the same kinds of consumers from, mostly, sold by the same kinds of outlets. Jewellery is a discretionary purchase, typically associated with weddings while bars and coins are considered investments. As per the report, the demand for gold jewellery was practically at a standstill in the closing weeks of 2023 due to the sharp rise in gold prices in December.

Gold jewellery consumption trends across the world:

While there has been a meagre 3.7 tonnes yoy growth in global consumption of gold jewellery, the overall demand was down in most parts of the globe due to high gold prices and increased cost of living. However, different societies have behaved differently even though the rise in gold prices and inflation has been a global phenomenon.

As per the World Gold Council, high gold prices have negatively impacted gold jewellery demand in most of the Asian markets as countries including India, Thailand, Vietnam, South Korea, and Indonesia registered a decline in demand.

The Japanese market showed resilience by growing 6% Year on Year (YoY) to 16 tonnes of gold jewellery consumption in 2023.

China was the main engine for the growth of gold jewellery demand registered a 28% yoy rise to 280 tonnes and became the number one gold jewellery consumer of the world in 2023. Surveys from the People’s Bank of China (PBoC) show that the saving intentions of households hovered around record highs in 2023 and this benefited gold, given its long-held status as a store of value.

The USA market has shown a downward trend in demand for Gold Jewellery for the seventh consecutive quarter in Q4 of calendar year 2023. Till Q1 of calendar year 2022, the demand for gold jewellery was boosted by high disposable income generated due to COVID-19 lockdowns and the government’s support. However, post the lockdowns there has been a rise in spending on travel, entertainment, and similar experiential products and services in the US market. The divergence of allocation of spending from gold jewellery coupled with the rise in gold price has reduced demand for gold jewellery in the US. In 2023, the US consumed only 136 tonnes of gold jewellery, which was 5% lower than the 2022 consumption.

In Europe, the story is entirely different as the cost of living has surged due to high inflation and the Russia-Ukraine war. The entire region consumed only 70 tonnes of gold jewellery in 2023, which was 3% less than the previous year. While top-tier consumers of Europe maintained a robust demand for jewellery, the World Gold Council says that this cohort of consumers is shrinking.

On the other hand, Turkey is also battling extremely high inflation but has made a new record in consumption of gold jewellery. Its annual demand reached an eight-year high of 42 tonnes in 2023, registering a 14% yoy growth. Lack of investment alternatives along with high inflation, coupled with geo-political tensions has made gold jewellery a safe haven for storing wealth in Turkey.

Even though Egypt is also going through the pains of geo-political tension, financial crisis, and currency depreciation, these factors contributed to the demand destruction of gold jewellery, quite contrary to the Turkish consumers. The gold jewellery consumption in Egypt declined by 17% yoy, making it the worst-performing country in the Middle East.

Saudi Arabia registered a modest growth of 1% yoy while gold jewellery demand from UAE dropped by 15% yoy. The report states that the decline in growth from UAE is due to the high base of 2022 when demand had sky-rocketed due to the resurgence of tourism in the country after COVID-19 lockdowns.

Changing trends in Gold Jewellery that boost demand:

As per the World Gold Council, products with lighter weights and cheaper unit-total prices are becoming increasingly popular in China. Insights from the Chinese jewellery retail market reveal that products lighter than 10 grams, or cheaper than RMB 2,000 contributed the most to retail sales. Lightweight, 24-carat, hard, pure-gold jewellery with more modest labour charges, outperformed others in the Chinese market.

In India, the high price of gold encouraged a trend for lighter-weight or lower-carat items. The higher margins charged on gem-set and 18-carat jewellery by retailers further encouraged this trend.

In Japan, lighter-weight and lower-carat ‘everyday’ designs suffered due to rising prices. The highest demand was that of the ‘Kihei’ chains that are plain, simple gold chains, often bought as an investment as they have a lower markup than more creatively designed gold jewellery.

It is quite evident that when gold prices are high, Chinese and Japanese prefer to buy more pure gold jewellery and are willing to compromise on the design or creativity of the jewellery to offset making charges. On the other hand, Indians prefer to compromise on the carat value of gold jewellery when gold prices are high, but they are also willing to pay higher making charges for creative designs that incorporate gems et al so that the jewellery ‘looks’ heavy.