Rising GDP drives consumer gold demand

The following is an edited summary from the U.K.-based World Gold Council about its report entitled: The growth dividend: How rising GDP lifts gold consumer demand. The full report can be found at www.gold.org.

The growth dividend: how rising GDP lifts consumer gold demand highlights how gold demand benefits at all stages of the economic cycle, including in times of expansion as well as in times of duress.

“Conventionally, investors have viewed gold as an asset they should buy when risks increase, such as during times of inflation, economic uncertainty, political unrest or currency depreciation,” the paper’s author and director of investment research for the World Gold Council Juan Carlos Artigas said. “Gold is unique in that it also benefits from periods of economic expansion when there is typically stronger consumption of technology and jewellery, which together represent more than half of global gold demand. This demonstrates the resilience of the gold market and the unique nature of gold as an asset class, rebalancing to reflect the economic environment.”

The paper includes research from Avinash Persaud, chairman of Intelligence Capital Ltd. His analysis illustrates the positive relationship between economic growth and consumer demand for luxury goods like gold jewellery.

It also notes that economic expansion is a boon for technological and healthcare innovations that use gold components, such as advanced digital devices or medical treatments. Both technology and jewellery related demand and global economic growth are closely related: for every 1% of additional gross domestic product, technology and jewellery demand rise by 5%.

Jewellery and technology together account for 58% of global gold demand—far greater than the 35% of demand driven by investments in bars, coins and gold-backed exchange-traded funds. Accordingly, gold offers a strong, pro-cyclical link to consumer demand in addition to its customary counter-cyclical link.

“The vast majority of gold demand is not for speculative or investment purposes, but for the more [commonplace] and deep-rooted purpose of fabrication of gold into jewellery or decoration. The level of investment demand is much smaller than jewellery demand,” Persaud’s research finds. “The gold market is large [and] annual gold demand is approximately US$175 billion to US$200 billion — greater in size than the entire European luxury goods market.”

According to the latest edition of Gold Demand Trends — the quarterly report published by the World Gold Council — U.S. jewellery demand saw a fifth straight quarter of growth between April and June. U.K. consumers were similarly upbeat, with jewellery demand for the first half of the year climbing 25%.