In the lead-up to the Chinese New Year holiday, jewelry counters across the country were swamped by shoppers looking to take advantage of low gold prices.
China overtook India as the world’s top gold buyer in 2013, with China Minsheng Bank estimating the country’s gold consumption grew 30 percent year-on-year to a record 1,050 tons.
Global prices of gold dropped nearly 30 percent last year, after a 12-year bull run. At the beginning of 2013, the price of gold was $1,693.75 an ounce, but it had fallen to $1,204.50 by year’s end. The start of 2014 has seen prices rebound somewhat, to the current level of around $1,324. This didn’t sway Chinese consumers during the lead-up to the year of the horse, which began Jan. 31, as demand remained high.
Chinese demand, which was up 29 percent through the third quarter of last year, according to the World Gold Council, runs counter to many other parts of the world, where demand globally rises along with the price of gold; in China and some other parts of Asia, as the price goes down, consumers buy more, because they don’t buy and sell, they hold on to their gold.
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The World Gold Council said demand for gold was up throughout much of Asia last year, with the most recent figures available (encompassing the first through third quarters) showing a year-on-year rise of 20 percent in Indonesia, 17 percent in Thailand and 13 percent in India.
Bucking the Asian trend was South Korea, which saw year-on-year demand fall 5 percent. European markets also saw declines, including the U.K. (down 11 percent) and Italy (down 9 percent).
Back in China, indicative of this gold rush were chaotic scenes on Jan. 1, when one of the nation’s largest jewelry dealers, Caishikou, opened a flagship in Beijing. According to data provided by the company, within the first hour of trading in 2014, the flagship sold 10 million yuan ($1.65 million) worth of jewelry, the vast majority of it 24-karat gold.
“Gold and gold jewelry mean more to Chinese people than many Western people could imagine. It contains an emotional legacy, traditions, customs, you name it,” said Cao Xiaorui, director of jewelry for the World Gold Council’s Far East division.
Gold jewelry is not only a gift traditionally given to friends, colleagues and loved ones over the New Year period, it is also, according to Cao, a long-term investment and therefore insulated from worldwide price fluctuations.
Retail data from China’s Ministry of Commerce shows demand for gold and silver jewelry rose by upwards of 30 percent year-on-year in each of the provinces surveyed during the Lunar New Year festivities. This may be in part due to the demand for horse-themed trinkets proving more popular than snake-themed jewelry, which accompanied 2013’s Lunar New Year celebrations.
“For hundreds of years, Chinese people have used gold jewelry as a form of saving, a counter-inflation tool,” he said.
“Chinese people who buy physical gold jewelry, gold bars and coins tend to be quite sticky. Most people wouldn’t do short trading with this medium, they normally keep it whether the price goes up or down.”
Experts believe the continued expansion of the middle class and the central government’s push for urbanization are only going to increase the number of Chinese buyers looking to buy gold jewelry in the foreseeable future.
“Over the next 20 years, the gold jewelry market will still be booming in China,” said Cao, “until this urbanization process is complete.”