Upside for silver jewelry demand in 2021!

The digital boom in India, to benefit online jewelry sales! 

Looking ahead to 2021, we expect to see a healthy double-digit gain although that is set against 2020’s low level. The forecast upside for silver jewelry demand next year will likely be constrained by our expectation of yet higher silver prices. Furthermore, the anticipated economic recovery may be pushed further out as the pandemic could take longer to be meaningfully controlled in India. This in turn could, to some extent, weigh on consumer sentiment next year.

The Longer Term Outlook:

As mentioned earlier, silver jewelry sales are dominated by price-sensitive rural India and record high rupee prices are likely to weigh on demand in 2021. To offset the impact of this, jewelry fabricators and especially those in the largest segment that focuses on traditional jewelry (such as leg chains and toe rings) will likely choose to reduce purity or promote lighter pieces, thereby reducing silver demand in weight terms. 

To an extent, the ongoing shift towards sterling silver jewelry and the rise of organized retailing will help offset this decline, but that is unlikely to lift silver demand materially. Beyond 2021, as economic recovery achieves a firmer footing, rising consumer confidence will help boost silver jewelry demand in India. In addition to this, increasing awareness of sterling silver should benefit. 

An early, yet, interesting trend is emerging in urban India where young consumers are choosing to buy gold plated fashion silver jewelry rather than plain gold jewelry which is relatively inexpensive and allows them to replace pieces more frequently.

Our discussions with several key jewellers revealed that millennials are more inclined towards the look and feel of the jewelry piece rather than its traditional significance, which should benefit the sterling silver and fashion jewelry segments.

Consumption Drivers Silver Prices: 

As explained earlier, India is a price-sensitive market and so large, frequent price moves can affect jewelry sales. Evidence suggests consumers also tend to take longer to adjust following a period of high price volatility. 

For instance, following silver’s rally in 2011 and the subsequent correction, jewelry demand only started to recover from 2013 onwards. Importantly, India’s gold and silver markets are quite separate, which means there has been very little price driven substitution historically. While some substitution may occur over the longer-term if gold prices remain high, it will still represent only a small fraction of the overall market.

Economic developments:

Rising disposable incomes and increasing urbanization have had a positive impact on Indian silver demand. As economic growth recovered after the 2013 slowdown, the positive spill over for silver jewelry demand was palpable. While stable and low silver prices also contributed to the rise, silver jewelry fabrication more than doubled between 2013 and 2018. 

However, as economic growth slowed from 2019 onwards, silver demand also started to ease back. In terms of some of the key jewelry segments, the growth in rural incomes tends to positively impact traditional jewelry demand while rising urbanization benefits fashion and sterling silver jewelry. 

Structural changes to product offerings the only visible structural change has been the shift towards higher purity sterling silver. This has also led to the ongoing premiumization of silver jewelry and, combined with modern every day wear designs, this is increasingly likely to attract the younger generation. 

Competitive advantages and threats the digital boom in India, helped by growing internet penetration, has benefited online jewelry sales, which is likely to favor silver (more so than gold in our view) given its relatively low price point. That said there is a clear trend among younger consumers whose disposable incomes are being spent on consumer electronics, such as cell phones and overseas holidays, which can act as a negative for jewelry.