Why India's Demand For Gold Jewelry Plummeted 44% Last Quarter

In November last year we spoke with Indian gold retailers and reported that demand for gold jewelry was declining, especially when compared to 2010 sales.

Now a report from the World Gold Council tells us that demand for gold jewelry in India fell 44 per cent year-over-year in the fourth quarter of 2011. Weakness in the rupee and volatility in gold prices played a huge part in dampening demand. Moreover, the weakness in the Indian economy kept consumers at bay.

From the report:

“The combination of high and volatile prices led consumers increasingly to demand lighter weight gold jewelry and forced trade to react with jewelry items at lower price points. Anecdotal report suggest that only necessary basic purchases were being made, with consumers largely holding onto their cash as they wait for more opportune buying conditions.”

Here’s the chart from the World Gold Council that shows per cent change in jewelry demand by country:

gold demand

Photo: World Gold Council

In a separate report, Frank Holmes of U.S. Global Investors (via Ryan George) pointed out that Gold in Indian rupee terms rose over 35 per cent from July to November, about three times the magnitude of gold priced in U.S. dollars, yuan or yen. Here’s a chart that shows the impact of rupee volatility on gold price:

gold currency chart

Photo: U.S. Global Investors

The outlook for the start of 2012 isn’t much better. The Indian cabinet recently approved a bill that makes hallmarking gold mandatory and signaled a potential increase in the import tax on gold, both of which will require both traders and consumers to adapt some more.

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