Why Is China Turning Its Back on Gold Jewelry? Chris Wood Explains | Market News
16/07/2024
A short-term downside, Wood wrote in his weekly note to investors, GREED and fearwas evidence of weakening Chinese demand, as gold recently moved into a discount in Shanghai for the first time since June 2023, falling from a $63/oz premium to international prices in mid-June to a $12/oz discount last week. That was the biggest discount since early May 2023, though it rebounded to a $13/oz premium later, the data showed.
Further bottom-up evidence of weakening demand in China, Wood said, also came with the release of quarterly data from Hong Kong-listed Chow Tai Fook, a gold and jewelry retailer, on Tuesday. It reported a 20 percent year-on-year decline in retail sales value in Q1-FY25 ended June 2024, with same-store sales (SSS) down 26 percent year-on-year in mainland China and 31 percent year-on-year in Hong Kong/Macau.
"The latest data shows weakening consumer demand for gold in China. The value of retail sales of gold, silver and jewellery at enterprises larger than designated sizes fell 3.7% year-on-year in June, following an 11% year-on-year decline in May, according to the National Bureau of Statistics. It rose just 0.2% year-on-year to RMB172.5 billion in the first half of 2024, compared with a 13.3% year-on-year increase in 2013. China's gold imports plunged 58% month-on-month and 40% year-on-year to 58.9 tonnes in June, the lowest level since May 2022. These data are likely to reflect resistance from Chinese consumers to rising gold prices in renminbi terms," Wood wrote.
Meanwhile, in the January-March 2024 (Q1-CY24) quarter, gold jewelry demand in mainland China fell 6% year-on-year to 184.2 tonnes, according to the World Gold Council (WGC), from 195.6 tonnes.
Central Banks' Demand for Gold Remains Firm
The strong upward trend in gold prices over the past 12-18 months, analysts said, has cast its shadow on the overall demand for gold jewellery. The rise in gold prices over the above period, WCG estimates, was due to firm demand from global central banks that contributed at least 10 percent to gold’s performance in 2023 and potentially around 5 percent in 2024.
Gold imports, gold prices
The price of gold bars in renminbi terms has increased by 37 percent since the beginning of 2023. In dollar terms, gold prices reached $2,331/oz at the end of H1-CY24, according to WGC data, up 12.1 percent during this period. In rupee terms, prices increased by 12.3 percent during this period, reaching Rs 62,440 per 10 grams, with an average price of Rs 58,944 per 10 grams in H1-CY24, WGC said.
In 2023, central banks added 1,037 tonnes of gold, the second-highest annual purchase in history, following a record 1,082 tonnes in 2022, WGC said.
According to the 2024 Central Bank Gold Reserves Survey (CBGR), conducted between February 19 and April 30, 2024 with a total of 70 responses, 29 percent of central banks, WGC said, intend to increase their gold reserves in the next 12 months, the highest level observed since WGC launched this survey in 2018.
"The planned purchases are primarily motivated by the desire to rebalance, at a more favorable strategic level, gold reserves, domestic gold production and financial market concerns, including increased crisis risks and rising inflation," the WGC note reads.
First published: July 29, 2024 | 9:56 AND
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