10% Drop in 2014 Global Gold Jewelry Demand

This Indian woman who reportedly wore more than $600,000 worth of jewelry to her wedding may have helped India achieve an 8 percent gain in gold jewelry demand in 2014

Global gold jewelry demand fell 10 percent year-over-year in 2014 to nearly 2,153 tons as strong growth in India, the US and UK couldn’t offset declines in many other large gold markets, the World Gold Council said Thursday.

The WGC, in its quarterly Gold Demand Trends report for the fourth quarter and year-end 2014, says the decline was largely due to extremely strong comparisons to 2013. 

“2014 was always going to be a difficult year for jewelry demand, contending with comparisons to phenomenal strength in 2013,” WGC said in the report. “After a steep drop in Q2, demand for gold jewelry gradually recovered, culminating in the strongest Q4 since 2007.”

The report also notes that the year-end figure is “comfortably above” the 2,053 ton average for the the prior five-years. 

Despite the drop for 2014, year-over-year fourth quarter demand actually grew by 1 percent to 575 tons, again led by a surge in year-end demand in India, the US and the UK, according to the report. 

The report, which also tracks gold demand for technology, investment and central bank net purchases, says jewelry remains the biggest source of demand for gold, accounting for nearly 55 percent of total demand in 2014. 

Declines were reported in much of the world including nearly all of Asia, the Middle East, Russia and in gold manufacturing centers Turkey and Italy. 

The biggest surge in demand for 2014, by far, was in India—one of the two largest gold markets in the world. India had its strongest year for jewelry demand since the WGC began tracking demand in 1995, up 8 percent year-over-year to 662 tons. Wedding- and festival-related purchases drove fourth quarter demand up 19 percent and first-half 2014 up 37 percent, year-over-year. “The second half of the year was the strongest H2 in our data series (from 2000),” the WGC said in its report.

However, it should be noted that the results in India are being compared with extremely weak 2013 results, due to restrictions of gold imports and the decline in value of the local currency in 2013. 

The other largest gold jewelry market in the world, China, saw its 2014 demand fall by 33 percent year over year to 623.5 tons. Despite this, it was still the second best year for jewelry demand in the country since WGC records began. 

In the US, jewelry demand showed year-over-year growth for the seventh consecutive quarter. Its fourth quarter result of 54 tons was a 13 percent year-over-year increase and the strongest fourth quarter since 2009. The 2014 full year demand of 132.4 tons was a 9 percent year-over-year increase and the highest year-end total in five years. 

“That being said, it clearly has to be acknowledged that the market remains far below pre-crisis levels of jewelry demand, which between 2000 and 2006 averaged 360 tons per year,” WGC added.

In the UK, demand increased by 18 percent in 2014 to 27.6 tons. In the fourth quarter sales increased by 14 percent to 15.9 tons, led by the introduction of “Black Friday” sales events for the Christmas holiday season, the WGC said. 

“Lower carat gold jewelry took market share from silver and some interest in heavyweight plain gold chains was reported,” WGC said. 

In most other major gold jewelry markets, demand was down. 

The Asian region was generally weak, with smaller markets “affected by its own individual set of adverse economic circumstances that proved detrimental to jewelry demand,” WGC said in its report. Japanese demand for jewelry slid 8 percent in 2014 to an all-time low of 16.3 tons as the already ailing consumer sentiment “was dealt a blow by the sharp fall in the value of the yen after the central bank unexpectedly expanded its monetary stimulus program in the last quarter.” 

There was a 12 percent decline in demand in Indonesia, the largest of the non-Chinese Asian markets, due high inflation and political upheaval. Newly elected President Widodo announced the removal of gas subsidies in October, “which further choked disposal income.”

Vietnam bucked the trend with a 4 percent gain in 2014.

Other markets are as follows:

* Turkey, demand was down 7 percent to 68.2 tons. 

* Middle East, markets in this region lost a combined total of 8 percent in 2014 to 174.1 tons.

* Russia, gold jewelry demand in Russia dropped sharply in the fourth quarter, leading to a net decline of 4 percent to 70.6 tons for 2014. “The stratospheric rise in the gold price during the fourth quarter (as sanctions and sliding oil prices hit the domestic currency) proved too steep for many consumers.”

WGC says that Jewelry is by far the largest component of above-ground stocks of gold—accounting for almost half of the 177,200 tons of gold estimated to be held by private owners and central banks. 

The total global gold market in 2014 declined 4 percent to 3,923.7 tons, according to the report. The total global supply of gold was flat at 4,278.2 tons. 

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Q3 Global Gold Jewelry Demand Down 4%, US Demand Up 4%; India Demand Surges 60%

Global gold jewelry demand fell 4 percent year-over-year to 534.2 tons for the third quarter of 2014, according to the World Gold Council in its Gold Demand trend report released Thursday. However, the decline comes against an unusually robust third quarter of 2013, which experienced the strongest growth for jewelry demand since 2008. 

“Longer term analysis shows a market in good health. Q3 demand was marginally stronger than the five-year quarterly average of 527.6 tons, while year-to-date volumes continue to extend the broad uptrend from the low seen in 2009,” the WGC said in its report.

Two markets did shine, the US, with a 4 percent rise that helped lift manufacturing outputs in several gold jewelry producing countries; and India, which surged 60 percent. China and Hong Kong, meanwhile, experienced steep declines in gold jewelry demand. 

US ‘Revival’
The WGC’s report said the economic recovery and a downward trend in the price of gold created a “revival” of gold jewelry demand in the US that has had a “ripple effect” around the world.

“The US sucked in greater volumes of gold jewelry imports from markets as diverse as India, China, Italy, Mexico and Oman, according to the report. “Third quarter growth in the US market was very much an extension of the trend that has prevailed since early last year. Mounting conviction in the economic recovery has boosted sentiment and whetted consumers’ appetite for discretionary purchases. Gold jewelry has been a clear beneficiary: improving sales of higher carat and non-wedding related items helped demand to the highest Q3 total since 2009.”

The report added, “Lower gold prices have aided the recovery of US demand as retailers are more easily able to meet key price points without crimping margins. Or, similarly, to increase karatage while maintaining price levels. This has enticed some mass- market retailers back into the gold jewelry sector.”

India
The market that had the strongest third quarter by far was India, which reported a 60 percent year-over-year increase to nearly 183 tons—the second highest third quarter on record, the WGC said. 

“The third quarter of 2013 was decidedly weak as the introduction of complicated new measures to restrict gold imports and the subsequent sharp rise in local prices knocked demand,” the WGC said in its report. “But this quarter, other more positive forces were also at play.”

Among those forces is the confidence in the new Indian government led by Prime Minister Narendra Modi, a drop in the price of gold and robust buying during the Diwali festival season. 

“Although Indian consumers are typically wary of buying gold while the price is still moving, preferring to wait until it settles at a more stable level, the opportunity to buy at cheaper prices proved, for some, hard to resist.”

China
Meanwhile, China experienced a 39 percent year-over-year decline to 147.1 tons in gold jewelry demand. Hong Kong (where consumers from the mainland China account for most of the demand) fell 31 percent to 9 tons. The WGC said much of this decline is in comparison to the rapid expansion throughout 2013 and that gold jewelry sales are normalizing.

“18-karat (K-gold) jewelry was relatively more robust than the 24-karat (chuk kam) segment,” the WGC said. “The government’s anti-corruption drive may have contributed to this trend.”

Other Markets:
* Indonesia saw third quarter demand fall 16 percent to 9.7 tons partially in response to strength of demand last year. However, the WGC said “equally important was the Presidential election in July, which created a degree of political instability and discouraged spending on gold jewelry.” 

* Third quarter jewelry demand in Turkey fell 18 percent, year-over-year, to 19.2 tons—the lowest third quarter on record, the WGC said. “Consumers were unnerved by domestic political turmoil; worrying economic signals; and escalating Syrian violence in close proximity to the Turkish border. The ban on paying for gold jewelry by credit card installments continued to hang over the market, although this restriction was partially repealed in October.”

* Demand in the Middle East fell 14 percent year-over-year to 36 tons. Demand for gold jewelry across the region suffered from the comparison with strong demand last year, the WGC said, leading to a trend towards lower-karat and gem-set jewelry.

* Jewelry demand in the UK increased 18 percent to 4.6 tons, the fifth consecutive year-over-year rise.

* Gold jewelry demand in Russia edged up 1 percent year-over-year to 18.6 tons, despite a rise in the average domestic gold price due to a weaker rouble, the WGC said. 

* Demand in Italy fell 4 percent year-over-year to 2.7 tons. 

The Gold Demand Trends report also tracks gold for investment and technology purposes. In the third quarter overall demand was “subdued,’ the WGC said, falling by 2 percent to 929.3 tons. The price was relatively stable for the period. 

“Quarterly volatility in the US$ gold price was among the lowest levels seen over the past two decades,” WGC said. “This was both a cause and effect of the benign demand environment. Investor behavior in particular contributed to this circularity: the lack of a clear price signal caused investors to hold back from buying gold, which in turn dampened down price moves.”

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US Sales Remain Strong At Signet Jewelers While UK Sales Disappoint

Signet Jewelers, the largest specialty retail jeweler in the US and the UK, said Thursday that second-quarter year-over-year sales increased 3.1 percent to $880.2 million. Same store sales for the period increased 3.6 percent year-over-year while eCommerce sales grew 7 percent to $31.2 million.

This was offset by a 1.2 percent decline in net income to $67.4 million. During a conference call Thursday, Mike Barnes, Signet CEO, said the decline was primarily due to the costs associated with the acquisition of the Ultra outlet jewelry store chain and the conversion of many of them to Zale Outlet stores, and lower gross margins compared to other Signet holdings. Without Ultra, earnings per share were up 5.9 percent.

In the company’s US division, which now accounts for nearly 85 percent of total sales for the company, sales increased 5.6 percent to $741.1 million. Same store sales increased 4.9 percent for the period. Sales increases were driven by strength in bridal, colored diamonds and watches. Signet owns 1,449 jewelry retail stores that operate under the brand-names Kay, Jared, Kay Outlet stores, Ultra and stores and some regional brands.

Kay and Jared experienced increases in both transaction counts and average transaction value. Meanwhile, eCommerce sales increased 36 percent to $25.3 million.

In the UK division, total sales declined 8.5 percent to $139.1 million in the second quarter. Same store sales decreased 2.4 percent. The company said the sales decline was primarily due to a same store sales decrease of $3.4 million, the impact of closed stores of $5.6 million and currency fluctuation of $3.9 million. Signet owns 500 retail stores that operate under the H.Samuel and Ernest Jones names.

The company said that at Ernest Jones, the number of transactions increased driven primarily by strength in branded bridal and watches, excluding Rolex, and the average transaction value was lower, primarily due to the impact from Rolex being offered in fewer stores. In H.Samuel, the number of transactions declined, primarily due to store closures and lower traffic. This resulted in lower sales across many merchandise categories, partly offset by strength in branded bridal products. Sales in both businesses were impacted by lower bead transactions. UK eCommerce sales in the UK increased 5.4 percent to $5.9 million, which include 45 percent coming to the websites through mobile devices, Barnes said.

Barnes noted during the conference call that Signet is in the process of updating its websites and mobile presence to take advantage of the increased traffic.

Other second quarter highlights:

* Gross margin declined, falling to $309.7 million or 35.2 percent of sales, compared to $311.2 million or 36.4 percent of sales in the second quarter fiscal 2013. The includes the results for Ultra increased gross margin dollars by $5.7 million; however, it reduced the consolidated gross margin rate by 50 basis points and the US gross margin rate by 70 basis points. The Ultra gross margin is lower than the core US business due to lower Ultra store productivity and the impact of the Ultra integration.

* Gross margin dollars in the US increased by $1.3 million compared to second quarter of fiscal 2013, reflecting higher sales offset by a gross margin decrease of 180 basis points. The company said the lower gross margin was primarily attributed to a gross merchandise margin decrease by 50 basis points, attributed to Ultra; and store occupancy and operating costs deleveraged by 70 basis points, of which 40 basis points was due to Ultra. The remaining 30 basis point change was due to the increase of new store openings.

* The US net bad debt ratio increased to 4.9 percent of sales compared to 4.5 percent of sales in prior year second quarter. The increase in the ratio was primarily due to the growth in the outstanding receivable balance. In addition, the US division experienced a “slight decline in collection efficiency” and a change in the credit mix. In the UK, gross margin dollars decreased $2.8 million, primarily reflecting the impact of decreased sales and currency fluctuation offset by a gross margin rate increase of 40 basis points.
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* Selling, general and administrative expenses increased 4.2 percent to $250.5 million. As a percentage of sales, SGA increased by 40 basis points to 28.5 percent. This includes the results for Ultra, which increased SGA by $13.5 million and increased the consolidated SGA rate by 70 basis points. The company said Ultra’s SGA is expected to decline as the final steps of the integration are completed.

* Operating income fell 4.9 percent to $105.5 million. Operating margin declined 100 basis points to 12 percent.

* The US division’s operating income including Ultra declined 4.9 percent to $111.5.

* Operating margin for the US division including Ultra was 15 percent, compared with 16.7 percent in fiscal 2013, down 170 basis points. Excluding Ultra, the US division’s operating income was $119.3 or 16.8 percent of sales, up 10 basis points.

In its guidance, the company said it expects same store sales to rise in the low-single digit for the third quarter.

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