When reading about what caused the recent climb in gold prices, you will rarely hear someone mention the increasing demand for jewellery as one of the principal factors. People seem to focus largely on investment demand and external factors while ignoring jewellery – the unsung hero of the climb.
The huge factors increasing jewellery demand are the booming economies of Asia, with a particular focus on India and China where gold traditions are paired with a rapidly growing middle class. This may sound like a very promising factor contributing high demand for jewellery but I believe that, in these markets, gold jewellery is purchased as an investment and a store of wealth.
The jewellery culture in Asia is far different from North America; with high purity and heavy gold pieces trading for a very small jewellery premium, and mostly in the physical gold content. People have been buying jewellery in these markets because the consensus was that it's smart investment and that prices will continue to rise. I think that with the recent fall in gold prices, jewellery demand in these countries will be tested.