China and India Drive Gold Jewellery Consumption Forward in 2019

China – Reaping The Benefit Of Product Innovation

Looking first at China, consumption across the mainland has started the year on a positive note (see figure 2). Most of our contacts there report strong sales during the Chinese New Year festival and healthy levels of restocking following the holiday. We are also sanguine about the rest of 2019 and forecast consumption will rise by 3% to 758t, marking the third consecutive year of growth. Even so, the 2019 total will still be 27% lower than the 2013 peak, when the collapse in the gold price fuelled a huge wave of bargain-hunting.

A key driver behind the recovery that Chinese jewellery consumption has enjoyed in recent years is the local jewellery industry’s efforts to modernise and innovate. Manufacturers have developed new designs, alloys and production processes, expanding the range of products available. Meanwhile, retailers have focused their energy on branding, promotion and concept creation.

Through these efforts, China’s jewellery industry has strived to appeal to an increasingly younger, fashion-conscious and dynamic consumer base. This has not been an easy feat, given strong competition for consumers’ disposable incomes from other areas of discretionary spending. Travel, lifestyle, fashion and consumer electronics are typically higher priorities for younger consumers than jewellery purchases, in stark contrast to older generations who saw gold jewellery as both an adornment and an investment asset.

Among the new product assortments, we see in the market, a handful stand out. Perhaps the fastest growing, in percentage terms, is 3D printed, 24-carat ‘hard gold’ jewellery. Wax moulds are produced using a 3D printing process and are then electro-formed to create light hollow pieces in appealing designs.

‘Antique crafted gold’ is another extremely popular segment. This features traditional (for instance imperial or Buddhist) designs, with a matt finish and deep gold colour. High purity four 9s and five 9s gold jewellery are also on the rise, although part of this is at the expense of traditional 24-carat pieces.

‘Mirror gold’, featuring a smooth mirror-like surface finish, and ‘five good’ or ‘5G’, using a hardening process, are two other areas of 24-carat jewellery that are growing. Finally, K-gold, dominated by 18 and 22-carat purities, is also on the rise, helped by the wide range of colours and designs that manufacturers can achieve using different alloys.

Of course, a necessary condition for Chinese jewellery consumption to continue growing is that the country’s economic backdrop remains benign.

As such, continued uncertainty over trade tensions between China and the United States is a major concern. However, the Chinese authorities’ recent actions suggest a willingness to intervene with fiscal and monetary policy to support the economy. We therefore believe that, even if the outcome of trade negotiations is unfavourable, continued policy interventions will act as a mitigating factor.

India – Now Recovering From Last Year’s Headwinds

Turning to India, after a disappointing 2018, we expect domestic consumption will stage a turnaround in 2019, rising by 5% to 625t. A number of economic, political and market- specific factors are expected to fuel this increase.

Given that rural areas still account for some 60% of Indian gold jewellery demand, the government’s efforts to boost farm incomes, for instance through the increase of Minimum Support Prices for farm goods as well as direct cash transfers, should help consumption. More generally, recently announced fiscal stimulus, most notably the increase of the tax-free income limit to Rs 500,000, as well as ongoing infrastructure investment, should benefit demand across much of the country.