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Gold Jewelry Is Getting More Expensive, And Gold Investment Is To Blame

By Andrew Galbreath
Published on: 12:51 PST, May 19, 2016

Gold jewelry is getting more expensive, and investors who are buying up gold as a safe bet are the ones consuming all the supply.

Demand for gold surged 21 percent in the first quarter of 2016, which has driven prices higher. Prices have risen 21 percent so far this year, and currently stand at $1,262 an ounce. The World Gold Council (WGC) reported to CNN that gold prices are at their highest in 15 months, and demand had a record start for the beginning of the year. In particular, gold exchange traded funds (ETF) remained strong.

Gold is experiencing its best performance in almost 30 years, and is ranked as one of the most successfully performing commodities in the world for the first quarter. In addition to more ETF demand, some markets showed an increase in demand for the physical product in the form of bars and coins.

Investor passion for the shiny precious metal shows few signs of slowing, and jewelers are paying the price. The economic turmoil from 2008 onwards has been a big boost to gold, while jewelry sales are struggling. IDEX‘s website reported that sales are down by 19 percent and jewelry businesses are suffering, according to a separate report by CNN Money.

“Investors dominate the market for gold. So the more they buy, the more prices jump. The dynamic is putting the squeeze on jewelry makers, who are jacking up the price of gold rings, watches, tiaras and other items. The metal is universally regarded as a good bet in times of turmoil. Low oil prices, volatile stock markets and fears about the global economy have tipped gold into a bull market.”

Demand for gold jewelry fell to 481.9 tons in the first quarter, falling by 19 percent in contrast to the same period the previous year. Indian and Chinese demand for gold jewelry, which together account for vast markets, fell by 41 percent and 17 percent, respectively. The sharp increase in gold prices has decreased this demand, especially in the markets of Asia and the Middle East. For China, IDEX noted that demand was kept down in combination with a slowing of Chinese economic growth.

“The Chinese market had started quite strongly, in response to demand from the Chinese New Year effect. However, the country’s lowest first quarter GDP performance since 2009 affected consumer confidence, and therefore, retail sales of silver and gold jewelry. China had the additional burden of a new national hallmarking program, which comes into force on May 4, and requires that all gold jewelry of 99 percent purity be hallmarked. Retailers were involved in stock replacement for much of the quarter, led to a temporary supply squeeze, which intensified the slump in demand.”

Indian markets for gold jewelry are even more tumultuous at the moment, because jewelers and bullion traders have been on strike for the past six weeks to protest a 1 percent tax on jewelry manufacturing. The jewelry industry in India has been ground to a virtual halt since March as a result, as supply plummeted and lack of consumer confidence to buy at a time of market uncertainty.

Historically speaking, in times of economic uncertainty, the price and demand for gold skyrockets, and the current global recession is no exception to the rule. Turbulence in the stock market has also fueled investor demand, with gold trumping stocks, bonds, and most other forms of assets.

“If I’m correct and we do have the S&P 500 plunge down, gold could do very, very well,” Axel Merk, founder of Merk Investments, said to CNN. “If policymakers do everything perfect and equity markets end happily ever after, we could have seen the highs in gold.”

Recent strength in gold was fueled by 2016’s Dow opening, which was the U.S. stock market’s worst four-day opening to a year in history, according to stats going back to back to 1897.

[Photo by David McNew/Getty Images]

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