On 30 July, the World Gold Council released its Q2 2024 China Gold Market Review and Trend Analysis. As Q2 2024 comes to a close, jewellery consumer demand fell to its lowest level since 2009, driven by a combination of surging gold prices and slowing economic growth, while investment demand for gold-backed ETFs and bars and coins hit new highs, the report showed.
Jewellery demand was weak
According to the latest Q2 2024 China Gold Market Review and Trend Analysis, Q2 jewellery demand in China was just 86t, down 35% year-on-year and 53% QoQ. China's jewellery consumption fell 18% y-o-y to 270t in the first half of the year. The continued rise in the gold price and the slowdown in economic growth have led to a decline in consumer purchasing power, which in turn has dampened jewellery consumption.
Jewellery demand in China is the 10-year average for Q1 and Q2 and the first half of the year
China's gold and jewellery industry is facing a structural realignment, with weak jewellery demand and changing consumer preferences squeezing retailers' profit margins and accelerating further adjustment and consolidation in the industry.
According to the report, surging gold prices and slowing economic growth were the main factors that prevented consumers from buying gold jewellery in the first half of the year. The domestic gold price surged 10% in March, breaking the healthy trend of jewellery consumption since the start of 2024; Jewellery consumption was dampened by the continued rise in the gold price in April and May, as well as a slowdown in China's economic growth (GDP and disposable income growth slowed in Q2) and consumer purchasing power fell to its lowest level since 2013.
Unit price of jewellery consumers: from a spindle in 2022 to a pyramid in 2023
In addition to purchasing power issues, consumers' increasingly cautious attitudes towards spending have contributed to the weakness in jewellery demand. Jewellery consumption was weighed down by a sluggish property market, weak local asset performance and an uncertain economic outlook that led to a lack of consumer confidence and a high willingness to save, which in turn cut spending on discretionary items.
Investment demand is at a record high
In stark contrast to the weakness in jewellery consumption, investment demand for gold-backed ETFs and bars and coins showed strong momentum in Q2. In the second quarter, the cumulative inflow of gold-backed ETFs in the Chinese market reached a record high of about RMB14 billion, and the total assets under management and total holdings reached a new high.
In the first half of the year, Chinese gold-backed ETFs continued to flow into the market on a monthly basis. The cumulative inflow in the first half of the year was about RMB17 billion, the strongest first-half performance on record, and also exceeded the annual demand of previous years. In renminbi terms, the total AUM of gold-backed ETFs in the Chinese market surged by 77% in the first half of the year, and total holdings jumped by 50%, outpacing the rest of the world. Equity market volatility, a weaker renminbi and the strong performance of gold have all supported it.
In Q2, Chinese bar and coin demand remained strong, surging 62% y-o-y. Although bar and coin demand was down 27% QOQ compared to Q1's high base, it was the strongest Q2 performance since 2013. Total bar and coin demand also reached 190t in the first half of the year, up 65% y-o-y and the highest since 2013.
Strong bar and coin demand in Q2 drove total demand in the first half of the year to its highest level since 2013
The report notes that, unlike jewellery consumption, there is a strong positive correlation between physical gold investment and the gold price. Notably, in the first half of 2024, the Gold Accumulation Scheme (GAP) has also grown in popularity, allowing investors to hold and sell physical gold through bank accounts. The ease of accumulating and selling physical gold appeals to relatively short-term and more tactical gold investors.
The People's Bank of China announced only 2t of gold purchases in Q2, a significant decrease from previous quarters. A total of 29t of gold was purchased in the first half of the year, down from the same period in 2023. Despite this, gold now accounts for 4.9% of China's total foreign exchange reserves, the highest level since 1996.
In the second quarter of 2024, the growth rate of People's Bank of China gold purchases slowed significantly
Wang Lixin, CEO of the World Gold Council China
Wang Lixin, CEO of the World Gold Council China, explained that the sharp decline in gold jewellery consumer demand in the second quarter of this year is not "Chinese characteristics", and the world's major jewellery consumer markets such as India, the Middle East, the Americas and Europe have basically shown a downward trend due to the historic high of gold prices. In addition, after decades of rapid economic development, China's economy is facing a critical juncture to further deepen its reforms, and the jewellery industry may also begin to enter a new stage of development, namely a period of market maturity. He pointed out that recognising this, the entire gold industry needs to build on the new situation and develop a strategic development plan. At the same time, in the face of the impact of a new round of technological revolution and industrial transformation, consumers' consumption habits are also changing rapidly, so the jewellery retail industry also needs to embrace new quality productivity, innovate and adjust existing business models and development methods, and move steadily from simple scale expansion to high-quality development focusing on market segmentation and differentiated demand.
Looking ahead to the second half of the year, jewellery consumer demand is likely to increase slightly due to seasonal factors. However, the volatility of the gold price and the uncertainty of economic growth remain key factors affecting consumer sentiment. With the adjustment of economic policies and the improvement of market sentiment, the market performance in the second half of the year is worth looking forward to.