Gold hits speed bump but may regain luster this year

Is the yellow metal losing its shine?

A slump in the consumption of gold has spurred worries about the industry in China, but analysts and experts said the slide will not likely cloud the industry's outlook.

For 35 year-old Beijing-based Liu Ronghuan, the precious metal is not the ideal choice either for jewelry or for investment, as the price of gold continued to rally. Liu decided to tighten her belt given the economic growth downturn. Apparently, Liu was not the only one who felt this way.

Gold consumption has plunged in China since last year.

Estimates from the China Gold Association showed that gold buying fell 12.91 percent to 1,002.78 metric tons last year. Among all kinds of gold products, gold jewelry consumption fell 8.16 percent to 676.23 tons in 2019. Gold bullion, including bars and coins, fell 26.97 percent to 225.8 tons last year.

Even during the peak gift-giving season of the Spring Festival, the metal which resembles wishes for good fortune in Chinese culture seemed to experience a drop in sales as the outbreak of the novel coronavirus led to closed stores and sluggish demand.

"Consumer demand for gold products was weakened in the face of a surging gold price last year and an economic slowdown," said Alistair Hewitt, head of market intelligence at the World Gold Council.

According to the Shanghai Gold Exchange, where most of the gold in China is traded, the average gold price saw a 13.73 percent year-on-year increase to 308.7 yuan ($44.3) per gram in 2019.

Zhang Wenbin, deputy general manager for marketing at Xiamen Gold, said the price surge has made buyers more rational and cautious about their purchase decisions.

More consumers have turned to gold-backed exchange-traded funds for investment purposes, rather than gold futures and bullion, mainly because gold ETFs have lower transaction costs.

A recent WGC report showed that assets under management in Chinese gold-backed ETFs totaled 16.9 billion yuan for the third quarter of last year, a record high.

Wang Lixin, managing director for WGC's China operations, said China's gold-backed ETFs have contributed a major part of the 14.3 tons growth of Asian-listed funds in that year's third quarter.

"In addition, consumers, especially those aged under 30, are also considering cheaper metal alternatives for jewelries such as platinum or rose gold. On one hand, young consumers weigh more on styles compared with the material when making purchase decisions. On the other hand, they have less emotional attachment to gold, compared with their parents who tend to believe gold can bring good luck to the family," Zhang said.

WGC said in a report that fewer young consumers aged between 18-24 in China are willing to buy gold jewelry. Only 40 percent of consumers in that age group think wearing gold jewelry can bring luck. The number is much higher among people aged between 55 and 65, which is 88 percent.

Neil Wang, president of consulting firm Frost & Sullivan China, said more gold jewelry brands are considering products that are lighter and thus priced lower to boost sales, which is welcomed by those consumers.

A report by Frost& Sullivan China said that to attract consumers, many leading gold jewelry brands such as Lao Feng Xiang and Chow Tai Fook have launched its 3D-gold jewelry series, which is a type of product that uses less gold compared with the previous methods of product making for jewelry pieces that have the same look.

Zhang Wenbin said many gold jewelry brands are also integrating traditional Chinese cultural elements with modern styles. They are adopting the traditional Chinese way of gold forging to attract consumers.