Precious Metals – East versus West, Assessing Trends and Outlook for Investment and Jewellery Markets

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Contributed by: Chetan Shah, CFA

Price of the precious metals like Gold and Silver is the only factor common across countries adjusted for logistics and duties for a given purity. Otherwise consumption patterns and trends can differ widely in the Eastern and the Western hemispheres as well as across sub-categories of jewellery, physical investment, industrial consumption etc. The finer nuances about these markets was very well articulated by Philip Newman, Founding Partner, Metals Focus at IAIP’s speaker event in Mumbai. The key takeaways are reproduced below.

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The total demand for Gold increased from 4,196 MT in 2012 to 5,072 MT in 2013 led by increase in demand in jewellery and physical investment as the prices fell during the period from $1,668/oz to $1,412/oz. However, the demand is expected to fall to 4,325MT in 2014. One of the primary reason being 80:20 import principle introduced by India in later half of 2013 which affected the official imports early in the year and lower imports from China since February 2014. Unofficial imports into India from Pakistan, Dubai, Sri Lanka, China and Thailand might have remained strong initially with premiums of around $150/oz in October 2013 (and roughly $10/oz currently).

Buyers may return back in China as 2014 is an auspicious year for wedding. Whereas in India this season there are fewer auspicious days. Nevertheless, the jewellery demand both in China and India will be lower at 800MT and 500MT in the current calendar compared to 1,000MT and 580MT respectively.

Vietnam is large bar market. Turkey is largest coins market.

Silver consumption will be marginally lower at 33,918MT in 2014 compared to 34,319MT in 2013 mainly due to fall in demand from photography segment. Both industrial and jewellery demand otherwise is likely to remain healthy at 16,322MT and 7,528MT from 15,318MT and 7,290MT respectively. US is the bigger market for Silver jewellery as consumers moved away from gold due to higher prices over last few years. India is bigger market for investment demand. While coins are popular in the US, bars are popular in India.

Jewellery manufacturers are working to create brand royalty & franchise, moving away from per gram based pricing, shifting to lighter weight etc. For example 18-carat gold jewellery has been well marketed in China resulting into 15% share of overall pie. While France has seen introduction of 9-carat jewellery.

During 2013 ETFs and professional investors liquidated large quantity of gold resulting into sharp decline in price. From here on the prices, though weak, are likely to be less volatile as the current investors are stickier.

– CGS

About IAIP

India Association of Investment Professionals (IAIP), which is established April 2005 and located in Mumbai, is an association of local investment professionals. As one of the 136 CFA Institute member societies, IAIP connects members to a global network of investment professionals. Consisting of portfolio managers, security analysts, investment advisors, and other financial professionals, IAIP promotes ethical and professional standards within the investment industry, facilitates the exchange of information and opinions among people within the local investment community and beyond, and works to further the public’s understanding of the CFA designation and investment industry.
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