SINGAPORE/LONDON, (Reuters) — Chinese gold jewellery demand fell for the first time in eight years in the second quarter and could drop as much as 20 percent in the full year, a leading precious metals consultancy said.
A slide in Chinese demand will take away a key supporting factor for gold prices, already pressured by an improving global economy and U.S. stimulus withdrawal.
Many Chinese jewellery makers saw a 40-60 percent drop in gold fabrication in the second quarter, Sara Zhao, a GFMS analyst at Thomson Reuters, told the Reuters Global Gold Forum on Thursday.
Other industry sources also said higher gold prices and a weaker yuan are weighing on demand, and fresh buying has also been tempered by last year's record purchases.
Jewellery demand - the biggest segment of Chinese gold consumption — fell significantly in the April-June period, the first year-on-year drop since the second quarter of 2006, Zhao said.
"Consumers have become more rational on gold purchases," she said. "Unless there is a significant turnaround in the second half, demand looks set to fall well short of the record levels witnessed in 2013."
The second quarter drop is in contrast to huge purchases in the same period last year, when sharp price declines in April and June caused a mad rush for gold jewellery, bars and coins. Gold prices fell 28 percent last year after a 12-year bull run.
"The prices are not low enough this time around," said one dealer in Hong Kong, which serves as the main gold conduit for China. "With the yuan also weak, there is no reason for the Chinese to rush to buy gold."
"They anticipate prices (will) fall further, and could come back to the market if prices fall below $1,200 an ounce."
Gold has risen about 7 percent this year, but the strong gains of the first quarter have dwindled as the year has worn on. Prices are currently just below $1,300.
LOWER PREMIUMS, IMPORTS
China imported over 1,000 tonnes of gold last year from Hong Kong alone, overtaking India as the biggest buyer. Imports so far this year have slid 14 percent, though the second-quarter drop was a significant 45 percent.
Banks are reluctant to bring in more gold into the country when a weak yuan and lower premiums would force them to take losses on any sales, sources at bullion banks said.
Premiums — the differential between local prices and the global benchmark — have largely been at discounts or on par with global rates this year.
"The imports have fallen recently because the arbitrage opportunity isn't there," said one trader.
Weakness in demand jewellery and investment demand has also weighed on imports.
GFMS' Zhao said third-quarter imports will likely be similar to the 45 percent slide in the preceding quarter, while the fourth quarter could see a small uptick ahead of the Chinese New Year.
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