Number Of Chinese Gold Buyers, Investors On The Decline

October 14, 2019

Beijing (Oct 14)  This year, Chinese shoppers and investors have lost their appetite for gold, and there is little anticipation of any huge improvement next year as laggard growth and soaring prices are boosting consumer spending.

Jewelry consumption is projected to fall by more than 4 percent to around 661 tons this year, based on estimates by Metals Focus Ltd., while investment demand is projected to slide by over 21 percent to roughly 241 tons.

Turtle-paced growth and economic war doubts have put a dent in consumer sentiment, and a price upswing keeps a good number of investors at a distance, said Nikos Kavalis, an executive at the research agency based in London. Kavalis views next year's market demand to normalize.

Economic growth is sputtering in the world's largest buyer of gold. The official 5 percent to 6.6 percent estimate is the slowest ever, and the 6.3 percent rate announced in the second quarter is the lowest since the government started posting information in 1992.

"The country's economic conditions throw a spanner into the works which keep the consumption of jewelry under pressure," Kavalis said. The extended economic friction and rising domestic food prices, Kavalis added, have encumbered consumer spending on luxury goods.

Signs of a major positive outcome in US-China trade talks buoyed US equities late Friday and pushed rates of Treasuries up, but optimism may be constrained as market players voiced their worries about the deal.

 Gold recently saw downside pressure after US and Chinese oficials agreed over the first set of a trade deal late Thursday. The same pushed bond yields to multi-week peaks while slashing markets' safe-haven demand.

The stronger yuan was another factor that affected demand. Although Chinese shoppers may pass on purchasing the yellow metal, investors the world over are lining up to buy the bullion. This year, after reaching $1,557.11 an ounce last month, the highest in more than six years, spot prices pushed up 16 percent.

"You had a demand boost from more sophisticated style investors buying gold as a hedge against RMB depreciation back in 2017 and 2018," Kavalis said. "After the gold price increase we saw in the summer, it looks like there's less of that because now many of these investors are also concerned that the gold price looks good."

June's price rise saw China's demand for jewelry slowing, with showrooms allegedly abandoned towards the end of the second quarter, the World Gold Council said in its quarterly report.

Nonetheless, the retail landscape continues to evolve as leading brands broaden their networks and extend their scope to cities of lower rank, the council said.

Imports from the country will drop sharply this year as many Chinese investors cashed in their 2012 and 2013 purchases after this year's rallied rates, China Gold Association Secretary-General Zhang Yongtao said. This has increased domestic supply, adding that it has decreased the need for imports.


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