China, a major gold consumer alongside India, appears to be retreating from the yellow metal, according to Christopher Wood, Global Head of Equity Strategy at Jefferies. In his latest investor note, GREED & Fear, Wood highlighted a significant shift in gold demand dynamics in China, evident in recent market developments.
Price Discount in Shanghai
Wood reported that gold recently traded at a discount in Shanghai for the first time since June 2023. The discount, which peaked at $12 per ounce last week, marked a notable decline from the $63 per ounce premium seen in mid-June. Although this discount later reversed to a $13 per ounce premium, it reflects broader concerns about Chinese gold demand.
Declining Retail Sales
Evidence of weakening demand is further supported by quarterly data from Chow Tai Fook, a prominent gold and jewelry retailer listed in Hong Kong. The company reported a 20% year-over-year drop in retail sales value for Q1 FY25, ending in June 2024. In Mainland China, same-store sales fell by 26% year-over-year, while Hong Kong and Macau saw a 31% drop.
The National Bureau of Statistics indicated a 3.7% year-over-year decline in the retail sales value of gold, silver, and jewelry for June, following an 11% drop in May. The first half of 2024 saw only a marginal 0.2% increase in sales value, contrasting sharply with a 13.3% rise in 2013. Gold imports to China also plummeted by 58% month-over-month and 40% year-over-year to 58.9 tonnes in June, the lowest level since May 2022. This data suggests resistance from Chinese consumers to rising gold prices in renminbi terms.
Jewelry Demand
Gold demand for jewelry in Mainland China dropped by 6% year-over-year to 184.2 tonnes in the January-March 2024 quarter, according to the World Gold Council (WGC). This decline contrasts with the previous year’s figure of 195.6 tonnes.
Global Gold Prices and Imports
The rise in gold prices over the past 12-18 months has influenced overall gold jewelry demand. WGC attributes the increase in gold prices to strong global central bank demand, which contributed at least 10% to gold’s performance in 2023 and is expected to add around 5% in 2024.
Since the beginning of 2023, gold bullion prices in renminbi terms have surged by 37%. In dollar terms, gold prices reached $2,331 per ounce by the end of H1 2024, a 12.1% increase during this period. In Indian rupees, gold prices surged 12.3% to Rs 62,440 per 10 grams, up from an average of Rs 58,944 per 10 grams in H1 2024.
Central Bank Purchases
Central banks have been active buyers of gold, adding 1,037 tonnes in 2023, the second-highest annual purchase in history. The 2024 Central Bank Gold Reserves survey found that 29% of central banks plan to increase their gold reserves over the next year, the highest level observed since the survey began in 2018. These planned purchases are driven by a desire to rebalance gold holdings, domestic production, and concerns about financial market risks and inflation.
In summary, while China’s gold demand shows signs of weakening, global central bank demand remains robust, influencing overall gold market dynamics.
