Despite rising prices, gold jewelry sales soar as peak season nears

Rising gold prices have not dented consumer demand for jewelry in China — and this trend will likely continue due to factors like yuan depreciation, need for safe-haven assets and the upcoming traditional wedding season, experts said.

On Friday, the Shanghai Gold Exchange saw gold prices closing around 470 yuan ($64.7) per gram, up around 20 percent from less than 390 yuan per gram recorded on Sept 15 last year. On Thursday, the price of gold futures AU 2312 on the Shanghai Futures Exchange exceeded 470 yuan per gram, a record high.

The retail market for gold jewelry is also buzzing with sales activity despite pure gold jewelry prices still rising to above 600 yuan per gram.

"Despite the consistently high gold prices, consumers remain eager to purchase. They are drawn to its value-preserving attributes and ease of recycling. Additionally, September and October are peak months for traditional weddings. This is further fueling the demand for gold jewelry worn at such times," said Tang Huan, manager of a gold jewelry retail store at Shuibei, a gold jewelry manufacturing and trading hub in Shenzhen, Guangdong province.

She further said many shops have ventured into gold recycling, typically offering prices 10 yuan less than the SGE prices. "Our store's recycling volume is up by 15-20 percent compared to last month."

Data from the China Gold Association showed that in the first half of this year, overall gold consumption across China reached 554.88 metric tons, up 16 percent year-on-year, with gold jewelry consumption at 368.26 tons, up nearly 15 percent.

According to a recent World Gold Council report on retail jewelry trends, 58 percent of the 538 gold jewelry store managers, regional retailers and business leaders surveyed in 76 cities in China said they plan to increase their gold jewelry inventory in the coming year.

Ray Jia, senior analyst at WGC China, said despite challenges, an improved outlook for China's economy could provide some support for local gold demand. Also, various jewelry fairs and industry events may spur both manufacturers' and retailers' replenishing demand. Furthermore, given the upcoming National Day holiday and Mid-Autumn Festival, retailers' inventory restocking is likely to continue.

He noted that gold prices quoted in US dollars and the renminbi were headed in different directions in August. Major factors, including rising US Treasury yields and a strong dollar, weighed on the international gold price in US dollars. But the Chinese currency, which depreciated by 2 percent against the dollar in August, led to a mild increase in the RMB gold price.

Experts said such factors led some consumers to hedge perceived risks by buying gold for its asset-preserving quality. This, in turn, helped buoy demand for the precious metal.

Orient Securities said in a report that gold prices are expected to witness an uptrend. In the short term, the SGE gold prices will continue to rise while gold prices on the benchmark London Metal Exchange may remain volatile.