The price of gold skyrocketed, but the owner of the gold shop said that the business was too difficult to do, and he did not dare to buy it

Tencent News Prism

2024-05-28 15:50Published on the official account of the "Prism" column of Tencent News in Beijing

In April this year, Chongqing citizens were picking up gold jewelry. Image source: Visual China

Author | Xiao Wang

Edit | Wang Weikai

Produced by | Prism Tencent Xiaoman Studio

"The price of gold is unattainable, and I haven't dared to visit a gold store for a long time." Yu Hang (pseudonym), who lives near the Shuibei Market in Shenzhen, told the author.

In the past two years, Yu Hang, a girl born in the 90s, felt that the "golden blood" in her body was awakening, and she used to feel old-fashioned gold jewelry, but now she is more and more in love, and gold is still increasing in value. She took advantage of the "three golds" of the wedding the year before last to buy the gold jewelry only 380 yuan/gram, and now it has increased in value by tens of thousands of yuan. Near the water, visiting the Shuibei exhibition hall has also become her favorite daily leisure activity. But after March this year, Yu Hang did not set foot in the door of the Shuibei market again.

Since March, gold prices have begun to rise and fall sharply in a rare way. According to information from the Shanghai Gold Exchange, the domestic gold price soared from 480 yuan/gram to 577 yuan/gram in a month and a half, an increase of 20%, exceeding the annual increase last year. Subsequently, it fell rapidly to 540 yuan/gram, and after standing at 574 yuan/gram again on May 20, it plummeted to 557 yuan/gram on May 23, which is still at a historically high level. In the retail market, the listed gold price of Chow Tai Fook, Chow Sang Sang and other stores once exceeded 740 yuan/gram.

The price of gold skyrocketed, but the owners of the gold shops were not happy. Zhou Yang (not his real name), the owner of a gold jewelry store in Sichuan for more than 20 years, told the author that business was too bad and he wanted to close the gold store.

Who caught the skyrocketing wealth of gold?

The owners of the gold shops did not dare to buy the goods

Watching the gold price rush to a new high, Zhou Yang's heart is very complicated. On the one hand, the store's goods have increased in value; But on the other hand, fewer customers come to buy jewelry.

Zhou Yang's gold jewelry store has been open for more than 20 years, but he has never found business so difficult as this year. Especially during the May Day holiday, Zhou Yang told the author that the store's turnover was about the same as last year, but the profit was only about 1/5 of previous years.

The main reason is the major adjustment of the product sales structure. The gross profit of mosaic and fixed price products is higher, which is also the main source of profit for gold stores. However, customers now prefer pure gold jewelry priced by grammage, while the store's rent, staff costs and other expenses are relatively fixed, resulting in a sharp decline in profit margins.

Zhou Yang said that at present, the information channels are developed, and consumers are reluctant to pay for high-premium "fixed price" products and diamond products. In addition, with the high price of gold, more and more consumers are choosing to wait and see.

"The goods are value-added, but the gold shop mainly has to sell the goods for profit." Zhou Yang emphasized that now that sales are poor, the goods will not be able to circulate.

Gold prices have fluctuated much more than in previous years. According to data from the Shanghai Gold Exchange, the domestic gold price fell rapidly after hitting a high of 577 yuan/gram on April 15, and fell to 544 yuan/gram on April 23. After the May Day holiday, gold climbed to a high of 578 yuan/gram on May 20 and fell sharply on May 23.

The trend of domestic gold prices since the beginning of this year; Screenshot from Shanghai Gold Exchange

Zhou Yang regretted that he did not restock in late April, but he was even more afraid that the gold price would fall further at that time. Zhou Yang said that the current dealers do not dare to buy a large number of goods, only willing to take the recycled old materials "trade-in", so as to avoid the loss caused by the sharp fluctuation of gold prices, the current store sales are basically the inventory before the Spring Festival. Normally, dealers will replenish the stock with cash after a period of time, and each replenishment is about one kilogram, worth more than 400,000 yuan.

As the country's largest wholesale gold and jewelry market, Shenzhen Shuibei is sensitive to market changes.

"Everybody's lying flat." Some industry insiders who are familiar with the water shell market told the author.

The sharp rise and fall in gold prices has caused more trading friction than before. According to the person, jewellery processing factories generally do not prepare raw materials, but borrow materials from upstream suppliers according to market demand, and pay a certain amount of interest at the same time. Assuming that the factory and the customer have determined the settlement price to be 500 yuan/gram, but the gold price jumps to 510 yuan/gram the next day, the factory simply cannot afford such a large cost increase, so it can only suspend the order and watch the gold price rise higher and higher. "Who will bear the cost of the rapid rise in the price of gold? It's not a good deal. ”

Shuibei merchants are also suffering. The customers who came to buy gold jewellery are gone, and the rent of the shop is very small. "The jewelry industry is a heavy asset, and the products must be sold to turn over the funds, otherwise there will be problems." The person said.

The person in charge of a gold store brand told the author that the current industry is particularly difficult and particularly volume. Jewellery is a consumer discretionary and consumers are preferring to postpone spending at the current high level. In addition, some consumers' income expectations have weakened, and consumer spending has been compressed overall.

The profit margin of gold stores has been greatly compressed, coupled with the current wait-and-see sentiment of consumers, sales have declined, and some brand stores have simply closed their doors and withdrawn. Zhou Yang introduced that there is only one of the 6 stores of a brand store in the local area, and there are also some gold stores that take advantage of the high price of gold to clear their warehouses and withdraw.

The China Gold Association also pointed out at the end of April that the high price of gold and huge fluctuations have increased the risk of production and operation of gold processing and sales enterprises, wholesale and retail enterprises have become cautious in purchasing goods, the cost of raw materials for jewelry processing enterprises has risen, shipments have declined, and some small and medium-sized processing enterprises have even stopped work and taken holidays.

Gold jewellery is not selling, and consumers are flocking to gold bars

In the face of soaring gold prices, consumers are increasingly eager to buy gold, or postpone gold purchases, or look for more cost-effective ways to buy gold.

According to data from the World Gold Council, domestic jewellery demand totalled 184t in the first quarter of this year, down 6% y-o-y. Wang Lixin, CEO of the World Gold Council China, pointed out that from a value perspective, domestic jewellery demand in Q1 still rose 9% year-on-year to about 90 billion yuan, the highest Q1 in terms of value since the statistics began.

Wang Lixin introduced that market research shows that the demand in January this year (before the Spring Festival) is the highest in recent years, and practitioners were originally full of confidence. Unexpectedly, however, the surge in gold prices in March dampened consumer demand for gold jewellery, with consumers and retailers alike being cautious about buying gold. Lower demand in March partially offset a strong start to the year, resulting in a disaggregated jewellery consumption in Q1.

In contrast to jewellery, domestic bar and coin demand surged 68% y-o-y to 110t, the strongest Q1 performance since 2013.

Compared with gold jewellery, gold bars have a lower premium and retain their value. Taking the listed gold price of Chow Tai Fook on May 27 as an example, the gold price of its pure gold jewelry was 715 yuan/gram, while the gold bar product was 631 yuan/gram, and the price of ICBC Ruyi gold bar products was 565 yuan/gram at the same time.

Shandong Zhaojin Gold and Silver Refining Co., Ltd. (hereinafter referred to as "Zhaojin Refining") is a designated entrusted processing enterprise of precious metal products of many domestic banks. Wang Wei, deputy general manager of Zhaojin Refining, said, "The high price of gold this year has stimulated the enthusiasm of the people for gold bar consumption, and we are particularly busy this year. "Up to now, Zhaojin has refined nearly 60 tons of gold bars processed for the bank.

On social media, some young netizens suggested how to buy more cost-effective gold jewelry: buy gold bars from the bank, and go to the gold shop to process them into rings, bracelets and other jewelry, the labor cost can be as low as 10 yuan per gram, and a bracelet can easily save thousands of yuan.

Zhou Yang also told the author that the gold wholesale market that used to be aimed at dealers is now also sold to individual customers, and the price is only 3 yuan per gram more expensive than the price sold to gold stores. With the rapid spread of short videos, a large number of local consumers have come here to buy. This kind of sales method, which is known as the "Shuibei model" in the industry, has a huge impact on gold stores.

Gold has become the best investment product in China in the past two years, and domestic investors' enthusiasm for gold ETFs (gold-based assets, fund products that track spot gold price fluctuations and can be traded in the securities market) has also been heating up.

As of the end of the first quarter, the total holdings of gold ETFs in the Chinese market reached 67 tons, and the total assets under management reached 35 billion yuan, reaching a new record high.

At the end of April, Wang Lixin introduced that as of that time, China's gold ETF increased by 24 tons in April, setting a historical record for monthly position growth, and the total holdings have exceeded 90 tons. However, as the upward momentum in gold prices has slowed, domestic gold-backed ETFs have cooled. According to the latest data from the World Gold Council, China's gold-backed ETFs eventually increased by 17t to 84t in April.

The increase in income of gold stores does not increase profits, and the gold mine ushers in a splash of wealth

In 2023, gold will be sold well, allowing many gold retail companies to achieve the best performance since their listing. But the ensuing 2024 Q1 report was mixed.

Chow Tai Fook (01929.HK) HK) reported operating data for the first three months of this year, showing that retail sales in Chinese mainland increased by 12.4%. However, in terms of stores, same-store sales fell by 2.7% year-on-year, of which gold jewelry increased by 3.4% year-on-year, while jewelry inlay and karat gold jewelry decreased by 19.5% year-on-year.

Chow Tai Fook's FY2024 interim report (early April to late September 2023) pointed out that its gross profit margin fell by 150 points due to the increase in the proportion of gold jewellery revenue to 80.4% from 76.5% in the previous year. On the other hand, the surge in gold prices and the optimization of pricing strategies led to an increase in adjusted gross margin of 330 points.

Chow Tai Fook did not disclose its specific turnover-related figures. But for gold and jewellery stores, this shift in consumption structure means a sharp decline in profit margins.

Zhou Dasheng (002867. SZ) showed a more obvious trend in the first quarter. In the first quarter, its operating income reached 5.07 billion yuan, a year-on-year increase of 23.01%; However, its net profit fell by 6.61% year-on-year to 341 million yuan.

In this regard, Zhou Dasheng explained that due to the external economic environment, the price of gold market rose rapidly after the Spring Festival, superimposed on the post-holiday effect, gold consumption and downstream customers' replenishment enthusiasm was suppressed, and the sales of gold categories were affected to a certain extent after the holiday, consumption expectations were more cautious, and the optional consumer goods market was further pressured.

The gross profit margin of gold jewelry is much lower than that of inlaid jewelry. Taking Chow Tai Sang as an example, the gross profit margin of its gold jewelry is 8.66%, and the gross profit margin of inlaid jewelry is 31.65%.

In Zhou Yang's view, the brand side of the gold store is relatively strong, and it will require dealers to match a certain proportion of diamond inlay products when purchasing. At present, these products are seriously unsalable, and the sales status of the terminal is reflected in the statements of listed companies, and there is a certain lag. In addition, Chow Tai Fook has a good recognition in the market, and it is difficult for other brands to enjoy a higher premium.

In Lao Fengxiang (600612. SH) held an exchange meeting on May 10, an investor asked: The monitoring data of the Ministry of Commerce shows that the sales of gold, silver and jewelry during the Spring Festival increased by about 20% year-on-year, but Lao Fengxiang's sales increased by 4.36% in the first quarter, is it slightly lower?

In this regard, Qiu Jianmin, secretary of the board of directors of Lao Fengxiang, explained that the sales of this year's Spring Festival order will increase year-on-year, but because of the large increase in gold prices in the later period, especially the gold price of the Shanghai Gold Exchange increased by about 10% throughout March, during which the gold price rose by more than 50 yuan per gram. The rapid rise in gold prices has a great impact on terminal consumption, which in turn has had a certain impact on the company's sales in the first quarter.

In the upper reaches of the gold chain, the author learned during a recent visit that gold mining companies are speeding up production.

According to the World Gold Council, mine production rose 4% y-o-y to 893t in the first quarter of this year. Wang Lixin said that under the current high gold price, gold mining companies have stepped up production, but it is difficult for the supply of mineral gold to change significantly, and the change range is often in the average of 1%-2%. 4% is the highest Q1 supply ever.

Unlike commodities such as coal and steel, their prices are directly affected by supply, and there are cycles with significant fluctuations. The relationship between the gold price and mine production is not directly correlated. Some industry insiders told the author that the cost of gold mining is relatively stable. With the rise in gold prices, gold mining companies have ushered in a lot of wealth.

Shandong Gold (600547. SH) for example, its mineral gold output in 2023 will be 41.78 tons, revenue will be 59.275 billion yuan, a year-on-year increase of 17.83%, and net profit will be 2.328 billion yuan, an increase of 86.57%. According to the first quarter report of this year, its revenue reached 18.957 billion yuan, a year-on-year increase of 44.73%, and its net profit was 700 million yuan, a year-on-year increase of 59.48%.

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