China’s gold jewelry market is seeing a sharp decline as soaring gold prices and a sluggish economy weigh on consumer demand. Traditionally, the September mid-autumn festival and the National Day holiday in early October bring a boost in sales, but this year, the record price of gold is dampening purchases.
This week, gold hit an all-time high, surpassing $2,600 per ounce. The price surge follows the U.S. Federal Reserve’s decision to cut interest rates by 50 basis points, pushing global investors to seek gold as a hedge against economic uncertainty. However, despite the global appetite for gold as an investment, China’s retail jewelry market has felt the negative effects of the price hike.
The China Gold Council reported a 27% drop in gold jewelry purchases during the first half of 2024, reflecting a major decline in consumer interest. Overall gold demand in the country only fell by 6%, signaling that the jewelry sector is bearing the brunt of the downturn. The slowdown in demand comes as Chinese households face economic pressures, including shrinking disposable incomes, which has significantly reduced retail spending.
Retailers in markets such as Shenzhen’s Shuibei International Jewelry Trade Center, a hub for gold and gemstone sales, reported weaker-than-expected sales, especially during peak wedding season and the pre-holiday period. The surge in gold prices has also prompted some consumers to sell off their existing jewelry to capitalize on the high value, further reducing demand for new purchases.
One key indicator of the weakened demand is China’s gold premium, which has been in negative territory for most of the past two months. This premium measures domestic demand relative to international prices, and its decline highlights the broader market challenges. In August, gold imports to China reached their lowest levels since 2021, further underscoring the lack of retail and wholesale activity.
Additionally, data from the World Gold Council shows that withdrawals from the Shanghai Gold Exchange, a key measure of wholesale demand, dropped by 37% in August compared to the same time last year. This decline is especially striking, as August and September are typically strong months for gold purchases in anticipation of holiday shopping.
While demand for gold jewelry is faltering, investment in physical gold, such as bars and coins, remains relatively stable. Many investors in China are turning to gold as a safe haven amid uncertainty in other markets, including real estate. This trend suggests that gold’s allure as a protective investment remains strong, even as the jewelry sector struggles.
As China heads into its holiday season, the outlook for gold jewelry sales remains uncertain. Retailers are hoping for a recovery, but acknowledge that high prices and economic pressures could continue to weigh on consumer sentiment. The market may need time to recover, particularly if gold prices remain elevated.
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