Jewelry Sales Belie Falling U.S. Gold Demand

 

Finished gold jewelry remains a strong seller at the retail level, but demand for gold by U.S. jewelry manufacturer's remains as low as it's been in more than a decade, and shows little sign of recovery.

Consumption of gold for jewelry fabrication in the U.S. peaked at 8.3 million ounces in 2000 and has since tumbled to 5.75 million ounces last year, according to Gold Survey 2005 issued Aug. 9 by New York-based commodities analysts CPM Group. U.S. demand for gold appears to have bottomed out last year and is expected to hover near 5.8 million ounces for 2005.

At the same time, retail sales of gold jewelry in the U.S. rose 10 percent between 2000 and 2004, from $15.3 billion to $16.9 billion, according to the World Gold Council.

Demand for gold in the jewelry industries of Europe and Japan has been on the skids as well, according to the CPM report. European manufacturing demand for gold dropped 35 percent, from 24.871 million ounces in 1998 to a projected 16.173 million ounces this year. Japanese demand plummeted 43 percent, from 1.415 million ounces in 2001 to a low of 0.8 million ounces in 2004, and is expected to recover slightly to .810 million ounces this year.

This disparity between demand for gold by jewelry manufacturing countries and healthy retail sales of gold jewelry in the U.S. represents what CPM terms a "bifurcated world jewelry market"--one that began three years ago, when major jewelry manufacturing shifted to centers in China, India, Turkey and the Middle East. Accurate information on gold demand for these countries is difficult to quantify, due to sketchy reporting procedures and unreliable statistics. CPM estimates that demand for jewelry gold in these countries may rise from 46.043 million ounces in 2004 to 48.089 million ounces this year, continuing the expansion that began in 2003.

Total worldwide gold demand for jewelry is projected to rise 2 percent, to 71.397 million ounces this year.

The international gold market is five years into an upward price trend that is unprecedented since World War II. From an average of $271.67 per ounce in 2001, it has climbed to an average of $428.35 an ounce for the first seven months of 2005. This sharp increase, spurred by robust secular investment, has stimulated a revival in gold exploration and mine development worldwide. Gold's availability on the world market is projected to rise 3 percent in 2005, the first year since 1999 that global production has increased.