World jewelry fabrication fell by 11 percent (262 tons) in 2008, which took the total to its lowest level since 1989, according to a report released Thursday. Record and volatile gold prices, combined with a deteriorating economic backdrop, were the key reasons behind the poor performance.

However, as Gold Survey 2008 – Update 2 reports, there was some brief respite in the third quarter, when lower gold prices, in several key currencies, produced a 30 percent rise in jewelry fabrication, compared with the April to June period.

The report by precious metals consultancy GFMS, based in London, offers estimates on developments in global gold supply and demand for the full year 2008, as well as forecasts covering the first half of 2009.

When excluding scrap, a trend in jewelry fabrication, demand last year fell by a more severe 20 percent, or 306 tons, compared with 2007, to its lowest level since 1988, according to the report.

Jewelry fabrication (including scrap) in just four countries, India, Italy, Turkey, and the United States, accounted for 69 percent of the gross decline in 2008, the London-based firm said in its report. The largest traditionally price-sensitive market, India, produced the greatest fall last year. This was almost entirely a product of high and volatile local prices, which also accounted for the decline seen in Turkey.

These factors also accounted for much of the weakness in several key Western markets. In particular, the sharp drop in U.S. jewelry consumption, which was also affected by the domestic economic slowdown, not only affected the country’s jewelry manufacturing, but was an important reason for the fall in Italian offtake, which is estimated to have dropped by around 18 percent,” according to the report. The one significant positive note was the growth in Chinese fabrication, which grew for the sixth year in succession, in the process setting a new record in excess of 300 tons.

Looking to the first six months of this year, GFMS is forecasting an 11 percent year-over-year fall in jewelry fabrication, which is actually flattered by the comparison with a particularly weak first half 2008.

“Given our expectation of higher prices and a poor economic outlook, it is not surprising that we are forecasting lower jewelry fabrication in every region in the first half of this year,” said Philip Klapwijk, GFMS’ executive chairman. “In fact, if we take the comparison back further, and look at the first half of 2007, just two years ago, jewelry fabrication then was 400 tons higher than we are predicting for the first six months of 2009.”

JCK