Gold's Record Price Run Weighs on Jewelry Demand in China

Gold jewelry sales in China are slumping on the back of record prices and weakness in the country's economy.

Bloomberg reported on Thursday (September 19) that Chinese demand is traditionally high at this time of year due to September's mid-autumn festival and the week-long National Day holiday in early October.

However, gold's ongoing upsurge has dampened purchases — the yellow metal rose past US$2,600 per ounce this week, reaching an all-time high following the US Federal Reserve's decision to cut interest rates by 50 basis points.

While global investors remain engaged with gold as a hedge against economic uncertainty, China’s retail market for gold jewelry has seen a significant drop in demand. The China Gold Council reported a 27 percent decline in gold jewelry purchases in the first half of 2024, although the overall drop in gold demand was much smaller at just 6 percent.

The decline in consumer interest comes as Chinese households face a slowing economy and shrinking disposable income, leading to a significant reduction in retail activity.

Shop owners in key markets such as Shenzhen’s Shuibei International Jewelry Trade Center have reported weaker-than-expected sales during the wedding season and pre-holiday period.

Retailers in China, traditionally one of the world’s largest consumers of gold, are reporting steep drops in sales volumes. Consumers are also considering selling their current pieces to take advantage of the high gold price.

Bloomberg notes that China’s gold premium — a measure of domestic demand relative to international prices — has also been in negative territory for most of the last two months. Official data shows that imports of gold reached their lowest level since 2021 in August, highlighting the impact of weak retail and wholesale demand.

According to the World Gold Council, withdrawals from the Shanghai Gold Exchange, a key indicator of wholesale gold demand, dropped by 37 percent in August compared to the same period last year. This decline is significant given that August and September are typically strong months for gold sales as retailers stock up in anticipation of holiday shopping.

While retail demand for gold jewelry is slumping, investment in physical gold, such as bars and coins, remains relatively steady. Investors, facing uncertainty in other asset classes like real estate, are continuing to turn to gold as a safe haven.

As China approaches the holiday season, the outlook for its gold jewelry market remains uncertain. Retailers are hoping for a turnaround, but many acknowledge that sentiment may take time to recover, especially if prices remain high.

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Securities Disclosure: I, Giann Liguid, hold no direct investment interest in any company mentioned in this article.