The latest half-year report of the World Gold Council (WGC) has brought out some interesting trends in gold demand across the world. The overall demand for gold is down 6% at 2076 tons in the first half of 2020. That is not a surprise considering that gold prices are at an all-time high. Gold in the international spot market scaled $1950/oz, breaching the previous peak of 2011. So the 6% fall in gold demand is fine. But, what is really surprising is how the components of demand for gold have shifted.
Sharp fall in jewelry demand
Over the last 20 years, the average gold consumption for jewelry purposes has been over 1000 tons in the first half. That has fallen drastically to 572 tons in the first half of 2020. It is not just about the price of gold. Back in 2011, when the price of gold was above $1900/oz, the jewelry demand had been closer to 900 tons. The difference in 2020 is that the high gold prices have also been accompanied by a growth slowdown due to the Coronavirus pandemic. Unlike the slowdown of 2008, this time around the economic weakness has manifested in the form of economies like the US contracting by 33% in the Jun-20 quarter. In addition, the lockdown has resulted in the loss of jobs, a sharp reduction in income levels, and also a tremendous loss of purchasing power. This has deeply impacted consumption. Major markets like India have seen compression in jewelry supply and also demand.
