Once, the news of China's aunt sweeping all kinds of gold was reported by major media, but just after many years, there has been a recent sharp rise in gold prices and a shortage of gold jewellery that no one buys. What's the problem?
First, there are sales that the price of gold has risen sharply, and no one has bought gold jewelry?
According to the Securities Times, "No one buys it!" A senior salesperson in the gold and jewellery industry in Shenzhen complained to the Securities Times that the recent sharp rise in gold prices has had a significant impact on gold jewellery sales. She said the rising price of gold has affected many customers' willingness to buy gold jewellery "and feels that it is too expensive". The person said that during the Mid-Autumn Festival holiday just past, their sales were not very good, "[before] many customers were still waiting for the price of gold to fall, but the more they waited, the more expensive it became".
In the context of a new wave of gold prices, the Securities Times reporter recently randomly visited a number of gold jewelry stores in Shenzhen and found that the popularity is indeed not very strong. During the evening rush hour, many gold and jewellery retail stores are less crowded.
As for the terminal gold jewellery price, the reporter found that with the rise of the international gold price, the price of gold jewellery of many brands has also risen significantly, and after adding labor costs, the price of gold jewellery in many brand stores has exceeded 800 yuan/gram. And just over a month ago, during the "Qixi Festival", many brand stores still quoted gold jewelry at more than 700 yuan per gram.
The shrinking consumption of gold jewellery due to the continuous rise of gold prices has also spread to the Shuibei area of Shenzhen, which is the distribution center of gold and jewellery in mainland China. A senior practitioner of a gold jewelry enterprise in Shuibei area of Shenzhen told reporters that some small and medium-sized gold jewelry merchants have recently closed their stores, and he said that because the sales are not very good, the loss has been a long time, and a relative of his is ready to close the store opened in the Shuibei area.
For example, Chow Sang Sang's 2024 interim report recently disclosed shows that in the first quarter of 2024, the company's jewelry business in Hong Kong and Macau recorded same-store sales growth of 4%; Same-store sales growth in mainland China fell by 9% from a high base last year.
2. Why don't people buy gold when the price rises?
What should we think about the recent rise in the global gold price, which has not led to a simultaneous increase in jewellery sales, but rather a cooling of the jewellery market?
First of all, it is often the case that the rise in the price of gold will increase the investment attractiveness of related products. As a representative of safe-haven assets, the rise in the price of gold often indicates an increase in market risk, thereby stimulating investors' demand for safe-haven assets. This increase in demand will theoretically lead to an increase in sales of gold and its derivatives, which will also benefit gold products, including jewellery. Investors tend to buy gold when the price of gold rises, expecting further price increases in the future to achieve capital appreciation.
Second, in the Chinese market, consumers' purchasing behavior is often influenced by the psychology of "buying up, not buying down". This mindset means that when the price of a commodity continues to rise, some potential buyers may postpone their purchase decision to avoid the risk of depreciation that they may face if they start at a high price. In the case of gold jewellery, as the price of gold climbs, its retail price naturally rises, which can lead consumers to take a wait-and-see approach, especially if they believe that the current price level is beyond reasonable range.
In addition, as the price of gold increases, so does the risk of investing in physical gold. Investors need to be more cautious in assessing market trends to avoid experiencing price pullbacks after buying at highs. This uncertainty has further dampened consumer demand for gold jewellery, as they are more inclined to choose investments that can provide stable returns or have a clear guaranteed value function.
Third, as a derivative of gold, the cost of gold jewellery not only includes the price of gold itself, but also covers many aspects such as labor costs, design fees, and brand premiums. These additional costs make jewellery sell for much higher prices than raw gold, thus undermining its attractiveness as an investment. In contrast, physical gold investment products such as gold ETFs and gold bars and coins are more favored by investors due to their low cost and convenient trading. Especially during periods of high volatility in gold prices, these investment products can better meet the hedging and hedging needs of investors.
Fourth, from a long-term perspective, jewellery sales are likely to rise significantly only if the gold price enters a clear downward cycle. When the price of gold falls, consumers will see it as a good time to buy gold jewellery because the additional costs are relatively lower as a proportion of the total cost and the value for money is improved, which stimulates demand. In addition, the decline in gold prices has also reduced investment risk, making consumers more willing to invest in gold jewellery.