China’s gold buyers squeezed by record-breaking price surge

Chinese gold consumption is undergoing a notable shift as record-high prices, surging over 50% this year to above $4,000 an ounce, significantly impact purchasing power. This price increase, fueled by global economic uncertainty and China's domestic property market issues, has led to an approximate 60% decline in wholesale transactions and a prevalence of trade-ins at retail, even as many consumers remain bullish on gold's continued appreciation.

Analysis

Dimon says U.S. stocks facing higher risk of a serious fall - BBC By Casey Hall, Xihao Jiang and David Kirton SHANGHAI (Reuters) -Chinese consumers have long been lovers of gold, but record high prices are having an impact on buyers’ purchasing power when it comes to shopping for jewelry or for buying for investment purposes. Gold has surged more than 50% this year to a record high price above $4,000 an ounce, driven partly by uncertainty about the global economy and geopolitical tensions. In China, the country’s economic troubles, including a weak property market, have boosted people’s appetite for gold as an investment. But gold’s record-breaking run means that the per gram price of gold has increased to more than 1,160 yuan ($162.93) at many retailers in China this week, compared with around 630 yuan in January, according to state media reports. Yan Lixiaofeng, who runs wholesale gold dealer Shenzhen Shenhui Jewelry in Shuibei, China’s largest wholesale jewelry market, told Reuters, transactions are down around 60% this year, compared with an average year. "Before, with 1,000 yuan, our customers could buy about three grams of gold jewelry; now, 1,000 yuan only buys one gram. The difference is huge," Yan said. At one of Shanghai’s largest gold markets, store managers and shop assistants said more consumers were buying gold than selling it, but most transactions were trade-ins, as customers look to exchange older-style jewellery for newer designs. "As far as gold consumption is concerned, it’s still generally high, but the recent increase in price is quite significant," said Wang Haichuan, who works at a store in the market. He said the price rise had deterred some, though it had also encouraged others to buy more. "Most people think it will continue to rise," he said. Customers at the Shanghai market on Thursday were still bullish about gold prices. "I’m not a financial manager, so I don’t know for sure, (but) I think it will still increase a bit," customer Zeng Shuangshuang said. Another customer He Meihong said: "I think there’s still some room for investment opportunities." Which stock should you buy in your very next trade? AI computing powers are changing the stock market. Investing.com's ProPicks AI includes dozens of winning stock portfolios chosen by our advanced AI. Year to date, 3 out of 4 global portfolios are beating their benchmark indexes, with 98% in the green. Our flagship Tech Titans strategy doubled the S&P 500 within 18 months, including notable winners like Super Micro Computer (+185%) and AppLovin (+157%). Which stock will be the next to soar? Record high gold prices, surging over 50% this year to above $4,000 an ounce, are significantly altering consumer behavior in China. This price appreciation is largely driven by global economic uncertainty, geopolitical tensions, and China's domestic property market issues, which have collectively boosted the metal's appeal as an investment. The per gram price in China has risen sharply from approximately 630 yuan in January to over 1,160 yuan currently. This dramatic increase in price has severely impacted purchasing power, leading to an estimated 60% decline in wholesale gold transactions compared to an average year, as reported by Shenzhen Shenhui Jewelry. Consumers now acquire substantially less gold for the same monetary value, shifting retail activity towards trade-ins of older jewelry for newer designs in markets like Shanghai. Despite the deterrent effect of these elevated prices on outright purchases, consumer sentiment in China remains largely bullish, with many expecting continued price appreciation. This suggests a persistent underlying investment appetite for gold, even as transactional dynamics adapt to the current high valuation and reduced purchasing power.

Key Decisions for Investors

• Closely monitor demand elasticity in key gold markets like China, as current high prices are compressing transaction volumes despite underlying bullish sentiment.
• Evaluate the financial performance of gold retailers and wholesalers, especially those in emerging markets, for potential short-term revenue pressures stemming from reduced purchasing power and a shift towards trade-ins.
• Assess gold's sustained role as a safe-haven asset, recognizing that ongoing consumer bullishness in China, fueled by economic uncertainty, indicates persistent investment demand even amid changing consumption patterns.