According to a recent GFMS report, gold jewelry production will fall about 20% in the first half of 2008. GFMS Executive Chairman Philip Klapwijk noted that in 2007 jewelry production had been up 5% despite the 15% price rise for gold (in dollar terms).
Giving a market outlook for 2008, Klapwijk said, “The continuous price rise for gold and the current volatility in the market bodes ill for jewellery demand. Now, we expect a 20% drop in demand within the nearest six months. If, as we believe, the price will continue to move higher, then this tendency will be preserved also in the second half of this year.”
The report shows that in the first half of 2007 the demand rose by 44% compared to 2006, which was mainly caused by a relatively flat market in the first half of 2006. However, in the second half of 2007 the growth was less sharp reaching 12%.
The highest rise in demand for jewelry was registered in the Middle East, where it grew to reach 70 tons. Turkey, where foreign and domestic trade turned out particularly brisk, accounted for its major part. Besides, this country benefited from relatively stable gold prices, which in 2007 went up by mere 4% (average annual growth percentage).
East Asia was the second among gold consumers in terms of weight, mainly due to China’s stepped-up purchasing power, which, in its turn, was the result of growing income level of its population.
There was a slight slowdown in western markets last year. Italy, mainly due to headway demand for jewelry with gemstones, and the U.S.A., due to increased demand for gold-lean jewelry, demonstrated a moderate downdrift in gold demand.
The U.S. market was influenced by progressing consumer volatility, to some extent caused by the credit crises.
Never before was the consumer confidence index in the U.S. luxury industry as low as at the beginning of 2008.
Unity Marketing’s Luxury Consumption Index dropped 23.8 points from the third quarter to 63.6, its lowest value ever.
According to the survey, the same trend was reflected in consumption of luxury goods and services where spendings dropped 20% compared to the first half of the year.
According to Pam Danziger, heading Unity Marketing, affluent consumers, just like everybody else, feel the pain this time around.
“Since Unity Marketing began its study in 2004, luxury consumers have never expressed such a dismal view of their financial status, their feelings about the direction of the country as a whole and their plans for future spending,” Danziger continued.
The survey polled 1,281 consumers with an average income of $155,700 and mean age of 46.6 years.
“Now the pain is starting to spread to the luxury marketers worldwide, many of which are reporting weaker than expected sales in the U.S. market in the vital fourth quarter period,” Danziger said.
The prognosis is not good in the short term, says Tom Bodenberg, Unity Marketing’s economic forecaster. In his opinion, the light at the end of the tunnel could be the recent moves by the Federal Reserve System to lower interest rates. “Should inflation occur due to the relaxing of the money supply, consumers may look at luxury items as investments,” he says.
As some analysts assume, the financial recovery plan put forward by George W. Bush’s administration may produce beneficial effect on the jewelry industry.
The dismal 2007 holiday selling season provided the American jewelry industry with a taste of expectations for 2008: weak demand and sluggish sales, INDEX Online analyst Ken Gassman says. Jewelry demand in the U.S. market is expected to be weak during 2008. The country’s economic growth is slowing, and a recession is a real possibility. Historically, when economic growth slows, shoppers retreat and jewelry demand weakens substantially.
There is a catch to this forecast: despite weak jewelry demand, total industry sales are expected to rise. That is in stark contrast to prior economic slowdowns when jewelry sales declined on a year-to-year basis.
What is different this time is inflation. While inflationary pressures typically precede a recession, the U.S. jewelry industry has usually been an exception to this fundamental economic rule. During nine of the past twelve years, retail jewelry prices have declined in the U.S. market, despite economic cyclicality. But that won’t happen in 2008. With gold priced at $900 per ounce, rampant jewelry price inflation (both at the consumer and producer level) is expected.
According to Gassman’s forecast, jewelry sales (in money terms) will go up 3% - from $ 64.0 billion to $65.9 billion. Simultaneously, they will go down 4-5% in terms of quantity.
Hence, the inflation rate in 2008 for jewelry will be around 7-8%, a level the industry has not seen for nearly twenty years.
