Gold Jewelry Demand Is Down…Should You Be Concerned?

Monday, May 16, 2016

Gold has been my favorite commodity to watch throughout the year 2016, and for good reason. The price of the precious metal left the gate with momentum and has blasted into high price levels throughout the year. However, recently, a report showed that gold demand from jewelers is starting to falter. If you invest in gold, is this something that you should be concerned about? Today, we'll discuss the bullish view, the bearish view…and what I think we're going to see.

The Bullish View

All commodities are heavily dependent on the law of supply and demand. In general, when supplies rise and demand falls, we will see declines in the value of the commodity as a result. Adversely, when supplies are down and demand is up, we'll see gains. So at first glance, it seems as though the fact that gold jewelry demand is down is a bad thing. However, because gold is a safe haven investment, there's a bit more complexity than that.

You see, demand for gold jewelry has a tendency to follow economic trends, and it makes sense. When economic conditions are concerning, people are going to buy less jewelry. Adversely, when economic conditions are positive, consumers will buy more jewelry. We know that because gold is a safe haven investment, it has an adverse relationship with economic conditions. When economic conditions are positive, we tend to see declines in the value of gold and when conditions are negative, we tend to see gains in gold. With that said, the fact that gold jewelry demand is down is a testament to the fact that economic conditions around the world are far from positive. While gold jewelry demand was down 19%, demand from investors is up, and in a big way. In fact, overall demand for gold has grown by more than 20%, even with jewelry demand down.

The Bearish View

The bearish view with regard to gold jewelry demand is relatively simple. As mentioned above, the law of demand dictates that when the demand for a commodity is down, we will see declines in price. With demand for gold from jewelers falling, it's possible that overall demand will lag behind, but still follow the trends, leading to declines in the price of gold moving forward.

What I'm Expecting To See

Moving forward, I have an overwhelmingly bullish opinion of what we can expect to see from gold. While I understand the bearish view in the argument surrounding gold's demand, I believe that the bears are horribly mistaken. The reality is that we've seen several indicators that gold would climb in value recently. Some of the most important include:

  • Global Economic Concerns – The global economy is struggling. Because gold is a safe haven investment, demand for the precious metal tends to climb when economic conditions are negative as the public looks to gold as a way to keep their money safe.
  • Market Conditions – The market is a rough place to be this year. Every time we see it climbing, the movement is being followed by some concerning data that sends the market spiraling downward once again. So, investors are looking to gold, at the moment, as a way to realize gains.
  • Supply – The supply of the precious metal isn't expected to keep up with demand. The reality is that with gold reaching peak supply earlier this year, production is expected to decline over the coming years. In fact, this year, it is expected to fall by about 3%. This will likely send the value of the precious metal skyrocketing when mixed with demand factors!

Joshua Rodriguez

Joshua Rodriguez is an avid financial professional. He is the owner and founder of CNA Finance, a partner at Modest Money, and a writer for US News & World Report, Investing.com, and more! Joshua takes a strong fundamental approach to market analysis and enjoys offering his take on what we can expect moving forward. You can reach Joshua at cnafinancehelp@gmail.com.

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