In its latest newsletter GFMS has published a brief review of the impact of the credit crunch on the jewellery market in the industrialised world.The piece makes the very good point that the majority of jewellery market analysis concentrates on the price sensitive nations, especially India, because of their marked swings, but that the industrialised world's demand is still sizeable and merits attention.At 600 tonnes it is a strong force in the market, comprising approximately 16% of overall gold demand (based on 2008 demand figures) - but what may not be so immediately obvious is that it has been falling since 1992 and is now approximately half its peak level of the early 1990s. In value terms, however, expenditure has continued to show strong growth and jewellers' margins have also been on an upward curve.

The fall in tonnage stems from three primary causes: underlying structural changes; higher and more volatile gold prices; and recent macro-economic problems. The fall since 1992 has been smooth, reflecting GFMS' belief that much of the losses have been driven by secular changes such as jewellery's loss of market share to other areas of discretionary spending, while there is also an increasing tendency on the part of jewellery purchasers to look at alternative materials to gold, and at intangible elements such as the perceived value of branded pieces.The decline in demand in the industrialised world has accelerated since 2006. Overall jewellery demand in 2008 was down by 11% against 2007, at just over 2,100 tonnes, its lowest level since 1989, with the majority of the losses sustained in the first half of the year. Excluding scrap the fall was even sharper at 17% with the first half down by 35%.  Much of this can be ascribed to record gold prices and high volatility, with India, which of course is highly price-sensitive, dropping by 16% in the year as a whole. In the US, traditionally not especially price-sensitive, the fall was roughly one-third, with the fall driven in part by the slump in world GDP growth while much of the European Union sustained double-digit falls.As well as the fall in economic activity the rally in the gold price was a vital factor in the decline with manufacturers reducing the weights of pieces in an effort to keep pieces below important price points at the retail end, while striving to manage their margins. Structural changes have also been intensified, with, for example, the incorporation of more non-metallic elements into jewellery pieces.Latterly the impact of the financial crisis has been much more evident, and the study uses a chart of US gold jewellery imports to illustrate the point. Monthly imports have been down year-on-year since at least the start of 2006 and the fall accelerated over much of 2008 even as gold prices were coming down, reflecting changes in consumer confidence and spending patterns. There has been a downshift in caratage and the US in particular has been shifting towards high-end silver products.  Silver has also been losing market share overall, however, in favour of other forms of jewellery such as steel.The study suggests that the impact of the financial stresses can be assessed by analysing the structural changes in the markets that were in place before the credit crunch started having a tangible effect. The average annual losses that were sustained between 1996 and 2005 had been just 2% and if this trend had been continued then jewellery consumption in 2008 would have been some 200 tonnes higher that GFMS' current figures suggest. Much of the recent fall can be ascribed to gold's price action, but the scale of the decline implies that the financial crisis was probably equally influential.The outlook for 2009 is little better and GFMS suggests that it is not difficult to envisage further falls, of possibly up to three digits.