China’s Gold Demand to Stagnate as Price Drops?

May 11, 2012 at 09:31


Gold demand growth in China, the second-largest consumer, may stagnate this year as declining prices put off investors and slower economic growth crimps sales, according to the mainland’s biggest gold-jewelry maker.

“The volatility and decline in the gold price since September, and the slower economic growth, have led to some subtle changes in the Chinese consumers’ attitude,” Vice President Xin Zhihong said in an interview. Still, sales at the Shanghai-based jeweler that was founded in 1848 may grow at least 20 percent this year, Xin said in an interview.

Stagnating demand growth in the second-largest economy may help to extend the precious metal’s 17.5 percent slump from a record and derail a World Gold Council projection that China may displace India as the top user on an annual basis this year. Demand in China expanded 20 percent last year from 2010, and has risen 96 percent since 2008, according to council data.

“It’s the worst start of the year since the financial crisis in 2008,” said Emily Li, brand general manager at Chow Sang Sang Holdings International Ltd. (116), referring to conditions for the industry as a whole. The company is Hong Kong’s second- largest gold and gem-set jewelry seller by market capitalization.

Immediate-delivery gold traded at $1,585.05 an ounce at 1:34 p.m. in Shanghai, poised for a second weekly loss. The price sank to $1,580.13 on May 9, the lowest level in four months, as Europe’s resurgent debt crisis boosted the dollar. It reached an all-time high of $1,921.15 last September.

“The expectation that gold prices will always rise and that gold’s value can only appreciate seems to have faded,” said Xin at Lao Feng Xiang, whose company name translates as Old Auspicious Phoenix. “Some consumers are now sitting on the sidelines with cash in their hands, pondering whether to buy.”

China’s economic growth, hurt by a property-market slump and a slower expansion in exports, declined to 8.1 percent in the first quarter, the slowest pace in almost three years. The slower rate of expansion, coupled with a shift by policy makers to prioritize consumption over investment, has helped to hurt commodity prices. The Standard & Poor’s GSCI Spot Index of 24 raw materials is on course for a third monthly loss.

China consumed 769.8 metric tons of gold last year in jewelry and investments by individuals, from 639.2 tons in 2010 and 392.7 tons in 2008, according to data from the producer- funded council. The world’s largest consumer of energy and base metals may overtake India this year as the biggest user on an annual basis as surging incomes drive increased demand, the group forecast in February.

“I’m not that optimistic about the whole market,” Xin said yesterday in Shanghai, where he’s attending a trade fair. “We’ve seen the signs since the last quarter in 2011, that Chinese consumers share a quite pronounced tendency in which they usually buy gold when prices are rising and refrain from purchasing when prices are conceived to be on a downtrend.”

Goldman Sachs Group Inc. said this week gold may be set to rebound over the next six months, sticking with a forecast for the metal to rally to $1,840 an ounce on the Comex in New York. The gain may be driven by additional easing from the U.S. Federal Reserve next month, Goldman said in a report, which also cited signs of increased demand from buyers in China.

Mainland China’s gold imports from Hong Kong surged more than sixfold in the first quarter to 135.53 tons, according to data from the Statistics Department of the Hong Kong government this week. Shipments in March rose 59 percent from February.

“We’ve been in this business over 70 years and we’ve seen cycles,” said Li at Chow Sang Sang. Company sales in the mainland grew by more than 10 percent in the first quarter from a year ago, aided by purchases linked to the Year of the Dragon she said, referring to the current lunar year that’s associated with wealth and power and is popular for weddings and births.