China’s growing wealth is good news for gold
Jewellery demand in the world’s largest bullion market is being stoked by a property boom and rising stock market valuations
Singapore/Hong Kong — China’s growing throng of affluent consumers is driving a rebound in demand for gold rings, bracelets and necklaces as a property boom and high stock market valuations boost wealth in the largest bullion market.
"Things are much more positive than they were this time last year," said Nikos Kavalis, London-based director of research firm Metals Focus.
The jewellery market had bottomed out after three years of declines, he said.
Colleagues who visited the southern commercial hub of Shenzhen in early January told him showrooms were quite busy and wholesalers expected clients to return to replenish their stocks before Lunar New Year in the middle of February.
China’s demand for gold jewellery climbed 10% last year to almost 700 tonnes, as the wealthy increased purchases and consumption improved in second- and third-tier cities, according to the China Gold Association.
Buying of ornaments represented more than 60% of the 1,090 tonnes of gold consumed in China last year and made up a third of world jewellery demand.
Jewellery consumption in the second half was buoyed by holiday purchases, and by retailers more effectively targeting the needs of customers, the World Gold Council said in a report released on Tuesday, estimating that demand was 9% higher in the six months to end-December than a year earlier.
"We’re still optimistic for the coming year, even though we have a high base," said Kent Wong, MD of Chow Tai Fook Jewellery Group, the world’s largest jeweller by sales. "The trend of growth will continue."
Prices in China had increased, and the rising market was giving people more confidence to buy jewellery as an investment, not just for everyday use as a decorative item, he said in an interview last month.
The company’s profits jumped more than 40% in the six months to end-September, with sales growing 16% in mainland China and 13% in Hong Kong and Macau.
Property and stock market rallies had generated wealth and lifted spending, said Wong.
Home sales climbed to a record in December, shares hit the highest in two years last month and the economy accelerated last year for the first time since 2010.
Rising demand in China could help boost global prices because of the size of the market.
Gold in London advanced to the highest since 2016 last month, as inflation fears and dollar weakness fuelled demand.
Holdings in bullion-backed exchange-traded funds have risen about 40% in the past two years and increased to the largest stash since 2013 in January.
While gold has slid about 3% from last month’s peak to $1,329 an ounce, a succession of higher highs and higher lows on the charts since the start of last year has encouraged bulls.
Chinese buying of gifts for Lunar New Year also traditionally supports prices in January and February, with the Year of the Rooster set to give way to the Year of the Dog in the middle of this month.
China and Hong Kong could experience single-digit growth in same-store jewellery sales this year because of better consumer sentiment, said Mariana Kou, an analyst at brokerage CLSA in Hong Kong.
Another driver was that the expiring Year of the Rooster was an unusually long one, with two springs, Kou said, noting this was auspicious for marriages, and could lead to more births this year.
Gifts of gold are traditional for weddings and births.
Rising wealth in China, and demand from Southeast Asia and emerging markets, was unprecedented, Jeffrey Currie, global head of commodities research at Goldman Sachs, said in a Bloomberg Television interview. "This has put in a bid into gold in an environment where typically it would trade down."