China’s gold fever: record prices and see-saw sentiment – do consumers buy, sell or hold?
With gold prices dancing near a never-before-seen US$3,900 an ounce, Chinese investors and consumers are finding themselves caught up in a whirlwind of excitement and trepidation – frustrated by missed opportunities, wary of the record-high rally, and scrambling to decide whether to buy, sell or hold their glittering assets.
After topping US$3,800 an ounce for the first time last week in a surprise surge that has continued this week, gold is keeping market participants on their toes.
Li Yue, a Guangzhou-based engineer and an individual investor, saw what looked to be a golden opportunity to cash in on his holdings of the valuable mineral on September 19. He sold 200 grams (seven ounces) at 824.89 yuan (US$115.88) per gram, predicting that the price would correct downward. Instead, it continued to climb, reaching 873.69 yuan an ounce by the end of the month, when he spoke to the Post.
“Gold prices are soaring, and I can’t decide whether to buy or sell,” Li said. “I sold too early, and now prices keep climbing; it’s hard to know what to do next.
“It’s so frustrating that I’ve switched to investing in silver instead.”
In retail stores, shoppers are displaying a similar sense of hesitation.
The price of gold jewellery at major Chinese retailers has surpassed 1,120 yuan per gram, far exceeding the 890 yuan seen around Valentine’s Day just six months ago.
“At that time [in February], rose-shaped gold pieces weighing about a gram or two were popular among young male customers, being priced at about 1,000 yuan,” Feng said. “Now, a small 0.74-gram piece can cost about 1,200 to 1,500 yuan and seems too light to feel meaningful as a gift.”
The price surge has even impacted wedding-season spending, where gold jewellery is typically a staple.
“A simple gold bracelet now costs nearly 20,000 yuan, while a traditional gift set from a couple to their future daughter-in-law – about 50 grams of gold jewellery – has become prohibitively expensive for most households,” said Luo Jie, a retired teacher in his early fifties. He and his spouse, who have an adult son, were window shopping at a jewellery shop in Guangzhou.
Many gold holders are opting to cash out.
“My wife and I are thinking of selling the gold jewellery we received at our own weddings, to cover the down payment on a new electric car,” said Tommy Xu, a hairdresser from Henan province who works in Guangzhou.
In August, China’s wholesale gold demand fell to just 85 metric tonnes, down nine tonnes from July and reaching the lowest August level since 2010, while marking a year-on-year decline of 17 tonnes, according to the World Gold Council (WGC).
“Investors directed their attention to rallying equities. Meanwhile, the lack of a clear trend in the gold price in most of August led to investors waiting on the sidelines,” the WGC said in its monthly China gold market update report.
The precious metal, traditionally favoured in low-interest-rate environments and periods of uncertainty, has risen by more than 40 per cent this year and is on pace for its third straight year of double-digit gains, according to Goldman Sachs Research analysts. In a report on Tuesday, they expected gold to hit US$4,000 per ounce by the middle of next year.
Their gold price forecast was driven by strong structural demand from central banks and easing from the US Federal Reserve.
The analysts also see “a greater risk that the gold price will exceed [their] forecast rather than undershoot”. But that said, they noted that an increase in long gold positions – betting that prices will rise – “raises the risk of tactical pullbacks”.
Source: https://www.scmp.com/