Golden season for jewellery sales in China

Buyers swarm a gold jewelry counter at a shopping mall in Xuchang, Henan province, on Wednesday.

SHANGHAI - In Yuyuan Garden, one of the largest gold jewelry hubs in Shanghai, 54-year-old Cai Xiaolin finally had time to take a nap after lunch on Thursday.

"Many consumers came to choose gold rings, bracelets and earrings for Christmas and New Year. Some are buying gifts while others are buying in bulk for investment," said Cai, a sales assistant at Laomiao Gold.

The new wave of gold buying at the year-end came amid a slump in the price of the precious metal.

Gold prices have plunged some 30 per cent over the past 12 months, the fourth largest fall in one year since the 1970s.

Unlike the gold craze in April when China's consumers purchased 300 metric tons within two weeks after the price slumped, this time the hot sales were mainly driven by holiday consumption, said gold sellers.

According to the World Gold Council, demand for gold in China rose 22 per cent year-on-year in the first quarter of 2013 driven by increased sales of bars, coins and jewelry.

China Minsheng Bank estimated that the country's explosive demand for gold will push its gold consumption up 30 per cent year-on-year to a record 1,050 tons in 2013.

Cai said her store's revenue reached 70,000 yuan ($11,500) on Wednesday, compared with an average of 30,000 yuan.

On Thursday, the average price of pure gold at her store was 308 yuan per gram, excluding processing charges.

In a neighbouring store the average price was down to 293 yuan per gram, almost 20 per cent lower than the beginning of the year.

Zhang Ting, a 47-year-old Shanghai resident, said she purchased 200 grams of gold bars at 345 yuan per gram early this year, but she does not regard the investment as a failure.

"As long as I don't sell them at a lower price, I'm not losing money," said Zhang.

An increasing number of Chinese are purchasing gold with a passion.

They are seemingly still sitting tight while facing the slump.

"In China, an interesting feature of the gold market is you can hardly tell investment in gold apart from gold consumption. Buyers can swiftly shift their holdings from one category to another," said Cao Xiaorui, director of jewelry, Far East, for the World Gold Council.

In the third quarter, China's gold jewelry demand went up 29 per cent despite a downturn in global demand.

China's gold market is marching at its own pace, said Cao.

In Shenzhen, China's largest gold jewelry exhibition and wholesale hub, about 200 new gold jewelry display centers opened in the third quarter, showing the market's strong confidence.

The expanding middle-class is one of the major driving forces behind the rocketing gold demand, said analysts.

"Investing in gold bars and coins is considered long-term, and an increasing number of investors are realizing that gold is ideal to hedge risks, and put 5 to 10 per cent of their assets into gold," said Yang Fei, a Shanghai-based gold product analyst.

Several investment banks forecast a subdued price for the yellow metal.

While Goldman Sachs estimates $1,050 an ounce in 2014, Standard Chartered, UBS and Commerzbank anticipate gold will end 2014 with an average price of $1,200 to 1,300, according to their reports.

The price of gold hovered a little above $1,200 on Thursday.

China's demand for gold may be subdued in 2014, said analysts.

"Caution is warranted in expecting that the import growth of 2013 will be repeated next year. Over the medium-term, rising real interest rates and poorer capital returns for gold will reduce its desirability as a store of wealth," Victor Thianpiriya, a commodity strategist at ANZ, said in a note.

The vast majority of analysts are not counting on the same appetite seen in 2013, and participants in China generally acknowledge that buying this year was exceptional, and is unlikely to be repeated next year, according to UBS analyst Edel Tully.