Global demand for gold used for jewelry fabrication rose by more than 5 percent in 2007, according to a report on the precious metal released Wednesday. 

The rise in demand was almost entirely a first half event, with world jewelry fabrication over the first six months some 22 percent higher year-on-year, according to Gold Survey 2008, published by U.K.-based precious metals consultancy GFMS. Over the second half the decline amounted to 9 percent but in effect the drop was concentrated over the last three months.

The survey reveals that the impact of rising and volatile gold prices had a pronounced impact on the jewelry market, with fourth quarter demand dropping by more than 20 percent year-on-year.

In terms excluding scrap, which gives a truer indication of the call on the international gold market, global jewelry fabrication rose by more than 10 percent last year. Much of the growth in new jewelry demand was attributable to a 40 percent rise in the Middle East, which reflected not only healthy fabrication across much of the region, but also a fall in scrap supply. Both outcomes reflected widespread consumer expectations of further price rises, itself partly driven by the fact that gold price increases in some key markets, lagged the rise in dollar prices.

The analysis in Gold Survey 2008 also reveals the contrasting performances between the price sensitive and western-style jewelry markets last year, according to the report.

In addition to the growth in the Middle East, India achieved an 8 percent improvement in 2007, although this hides a remarkable difference between the first and second halves, with year-on-year growth in excess of 70 percent, almost offset by a close to 40 percent drop for the July to December period.

The largest gain in 2007 was recorded in China, the catalyst for which was a continued double-digit economic growth—the country in the process overtaking Turkey and Italy to secure second place in the global rankings behind India, according to the report. In contrast, both Italy and the United States experienced a drop in jewelry demand, the former partly due to weakness in exports the United States, which saw its retail sales of jewelry fall by around 15 percent due to a combination of a faltering economy and high gold prices.

Looking ahead to 2008, Philip Klapwijk, GFMS’ executive chairman, who delivered the findings of the Gold Survey in London, warned that global jewelry demand could see a substantial drop, “not only is the jewelry market having to contend with record gold prices, but there is added uncertainty from the price volatility both manufacturers and retailers are having to contend with. Another break above $1,000 is a real possibility but even if gold does not reach four figures again in 2008, we still expect to see a fall of in excess of 200 tones in global jewelry demand this year.”

JCK