(Bloomberg) — Months of record-high gold prices are discouraging Chinese consumers from buying, marring what should be one of the busiest times of the year for jewelry retailers in the world’s biggest gold buyer.
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Spot gold prices rose above $2,600 an ounce for the first time this week after Federal Reserve Chairman Jerome Powell cut interest rates by a half percentage point, signaling the start of a cycle of monetary easing. Gold has risen more than 25% this year.
Big investors aren’t ready to pull out of gold just yet, and many see room for further purchases. But China’s all-important retail spending is also feeling the effects of a gloomy economic slowdown and declining confidence, with consumer brands and retail sales plunging. Chou Taofu Jewelry Group Inc.’s shares fell to a four-year low last week.
In Shuibei, a mega mall in the southern city of Shenzhen that houses China’s largest gold jewellery retailer, shopkeepers are not very optimistic about the current wedding season around the Mid-Autumn Festival in September and the week-long National Day holiday in early October, both seen as touchstones for spending.
“When business remains so tough, it becomes a matter of survival,” said a man surnamed Wang who runs a counter at the Shuibei International Jewelry Trade Centre, declining to give his full name.
Shop owners say sales in late August and early September were down at least 50 percent compared with a year ago, when malls were packed and customers fought for space at the most popular counters.
China’s gold premium, a gauge of domestic demand, has been negative for much of the past two months, with data released on Friday showing imports of the precious metal in August hit the lowest level since 2021.
Wholesale demand is also weak, with withdrawals on the Shanghai Gold Exchange falling 37% in August from a year earlier, according to the World Gold Council. Withdrawals typically rise in August and September as jewelers build up inventory ahead of gold trade fairs and the National Day holiday.
Wait and see
The picture is not all bleak: Gold bars and coins continue to attract investors looking for a store of value as traditional assets like real estate stagnate. In the first half of this year, jewelry purchases fell 27%, while total demand only fell 6%, according to data from the China Gold Association.
The story continues
Still, China’s economic problems combined with pressure on personal incomes are worsening the spending outlook.
“The decline in consumer demand for gold jewellery is mainly due to weakening income prospects,” said Song Jiangzhen, a researcher at the Southern Gold Market Research Institute in Guangdong province. “The high price of gold has also dampened consumer purchasing power, with most consumers adopting a wait-and-see attitude, hoping for prices to fall before purchasing.”
For some, it’s time to sell.
“I haven’t bought any gold jewellery in the second half of this year. I only bought a necklace as a gift for myself during the Chinese New Year. Now it’s too expensive,” said Bao, a middle-aged production manager at a state-run factory on the outskirts of Shanghai, who declined to give his real name.
Instead, he said he would consider promotions to encourage buyers to consider cashing in their existing goods to take advantage of higher prices.
“Everyone is cutting back on consumption.”
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