Global gold jewelry fabrication fell nearly 24 percent during the first half of 2008, due to high and volatile gold prices and a drop in gold jewelry demand in the U.S., according to a report on the precious metal released Monday. The drop for the period totaled about 300 tons, compared with the first six months of 2007.

When excluding the use of scrap metal, jewelry fabrication, shrank by 36 percent or close to 350 tons, year-over-year, for the first half of 2008—its lowest level in around two decades, according to the GFMS Ltd. Gold Survey 2008–Update 1.

The most pronounced drop in jewelry (including the use of scrap) was seen in India, whose jewelry fabrication over the first six months effectively halved year-on-year, according to the report. Elsewhere, substantial declines were recorded across much of the Middle East, with both Turkey and Saudi Arabia, the region’s two largest fabricators, seeing falls of around one-fifth.

In the United States, one of the main jewelry consuming markets, retailers continue shift away from as part of an overall decline in jewelry demand, according to the report. This also accounted for much of the weakness in Italian jewelry fabrication, whose exports were further affected by the weakness in the US dollar.

Chinese jewelry fabrication posted a modest first half rise; the country’s robust economy offsetting the impact of sharp falls in China’s stock market and a devastating earthquake. Russian jewelry fabrication was also higher mainly because of continued economic growth, while in Egypt, expectations of further price increases were the chief factor behind the robust growth in the country’s jewelry market.

Looking ahead to the rest of this year, GFMS, a London-based precious metals consultancy, is forecasting a recovery in second half jewelry fabrication of 6 percent year-over-year, although this compares with a low base in the second half of 2007.

“We have already seen a sharp jump in third quarter demand, on the back of weaker prices, especially in some of the key price sensitive markets. Problems, however, may emerge towards year-end,” said Philip Klapwijk, GFMS’ executive chairman. “We still expect prices to rally and this could bring an end to the recovery we have so far seen in the third quarter.”

JCK