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Gold rush spurred by price collapse
April 18, 2013, Thursday
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Print Edition
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SHOPPERS in Shanghai rushed to jewelry stores after retail gold prices tumbled to a two-year low, tracking the recent plunge in global markets.
In its biggest plunge in 30 years, gold dived 9 percent to US$1,361.10 an ounce on Monday. Commentators have offered a plethora of causes, from economic outlook to central bank selling to a new gold import tax in India. China is the world's second-largest consumer of gold after India.
"Many customers have come into our shop looking for bargains," a shop assistant at a China National Gold Group outlet said during a local television interview. "One regular customer of ours bought 3 kilos of bullion bars, worth nearly 1 million yuan (US$160,150)."
China Gold, the nation's biggest gold producer, lowered its bullion price to 275.9 yuan a gram at its flagship store in Shanghai yesterday from 313 yuan per gram last Friday.
"The 10-gram and 20-gram bars are sold out, and we don't have many stocks left for the 50-gram and 100-gram bars," the shop assistant said.
Apart from high rollers shopping for gold bars, the stores were also swamped with consumers who think it's a good time to buy jewelry for themselves or as gifts.
A shop assistant at a store operated by Shanghai-based jewelry retailer Lao Feng Xiang said customer numbers have doubled in recent days and bullion bars are selling like hot cakes.
"It's like a big bazaar," she said. "The shop is crowded with customers. Many are placing orders for sold-out products. They are buying jewelry for grandchildren or wedding gifts mostly."
Xu Wenjun, secretary-general of the Shanghai Gold and Jewelry Trade Association, said the sudden drop in prices has added to a sales momentum that began with Spring Festival this year. As the traditional wedding season approaches, that buying spree is expected to continue.
Shrinking asset
There's a downside to the lower gold prices. Those who have invested in the precious metal in recent years are watching the value of their asset shrink.
Jenny Mao, a 26-year-old white-collar worker in Shanghai, has been investing in gold through an exchange-traded fund since 2011.
"I could lose almost 8 percent of my investment if I sell now," she said. "It's been quite a drop since last year, when gold was near US$1,800 an ounce. Still, I may buy some more gold at today's low price. For me, this is a long-term investment to spread risk, not make money."
Gold exchange-traded funds (ETFs) globally saw a record US$9.2 billion of net outflows during the first three months of this year, according to ETF Securities, a London-based specialist.
Zhu Ning, deputy director and finance professor at Shanghai Jiao Tong University's Shanghai Advanced Institute of Finance, said he has been warning about a bubble in the gold price since last year.
"Apart from technical reasons, like institutions adjusting their holdings of gold, there's a logical base behind the plummeting price," said Zhu.
"The price of gold is determined by demand and supply, just like anything else," he explained. "We know the supply of gold is relatively fixed in many respects, so it's the appetite for gold that really matters in the equilibrium. The metal reached its peak last September, as investors worried that central banks pumping up money supply might erode their wealth. Now they suspect the US government may retire its quantitative easing earlier than expected, so it's time to move from gold to a bullish dollar."
He warned investors to be aware of risks in gold investment but added that the precious metal is probably a good long-term investment, especially for rookie investors.
Prices in the domestic market tracked gold's global decline. On the Shanghai Gold Exchange, the spot contract for gold of 99.99 percent purity slumped 11.3 percent in the past three days to 276.5 yuan per gram yesterday.
Gold for June delivery fell 12.5 percent during the same period to 275.09 yuan per gram on the Shanghai Futures Exchange.
Gold-related stocks also tumbled.
Zhongjin Gold Corp, the listed unit of China's biggest producer of the metal, lost 9.7 percent in the past three days to 12.34 yuan yesterday. Zijin Mining Group Co, China's biggest mining company, retreated 6.8 percent to 3.15 yuan.
Lao Feng Xiang Co, the Shanghai-based gold jewelry manufacturer and retailer, sank 11 percent to 19.36 yuan. Shanghai Yuyuan Tourist Mart Co, another chain of gold jewelry stores, shed 9 percent to 7.05 yuan.
Several institutions have lowered their estimate for gold prices. Bank of America Merrill Lynch predicted gold would decline to US$US1,200 an ounce before prices stabilize. French bank Societe Generale cut its price target from US$1,800 to US$1,500 an ounce.
In its biggest plunge in 30 years, gold dived 9 percent to US$1,361.10 an ounce on Monday. Commentators have offered a plethora of causes, from economic outlook to central bank selling to a new gold import tax in India. China is the world's second-largest consumer of gold after India.
"Many customers have come into our shop looking for bargains," a shop assistant at a China National Gold Group outlet said during a local television interview. "One regular customer of ours bought 3 kilos of bullion bars, worth nearly 1 million yuan (US$160,150)."
China Gold, the nation's biggest gold producer, lowered its bullion price to 275.9 yuan a gram at its flagship store in Shanghai yesterday from 313 yuan per gram last Friday.
"The 10-gram and 20-gram bars are sold out, and we don't have many stocks left for the 50-gram and 100-gram bars," the shop assistant said.
Apart from high rollers shopping for gold bars, the stores were also swamped with consumers who think it's a good time to buy jewelry for themselves or as gifts.
A shop assistant at a store operated by Shanghai-based jewelry retailer Lao Feng Xiang said customer numbers have doubled in recent days and bullion bars are selling like hot cakes.
"It's like a big bazaar," she said. "The shop is crowded with customers. Many are placing orders for sold-out products. They are buying jewelry for grandchildren or wedding gifts mostly."
Xu Wenjun, secretary-general of the Shanghai Gold and Jewelry Trade Association, said the sudden drop in prices has added to a sales momentum that began with Spring Festival this year. As the traditional wedding season approaches, that buying spree is expected to continue.
Shrinking asset
There's a downside to the lower gold prices. Those who have invested in the precious metal in recent years are watching the value of their asset shrink.
Jenny Mao, a 26-year-old white-collar worker in Shanghai, has been investing in gold through an exchange-traded fund since 2011.
"I could lose almost 8 percent of my investment if I sell now," she said. "It's been quite a drop since last year, when gold was near US$1,800 an ounce. Still, I may buy some more gold at today's low price. For me, this is a long-term investment to spread risk, not make money."
Gold exchange-traded funds (ETFs) globally saw a record US$9.2 billion of net outflows during the first three months of this year, according to ETF Securities, a London-based specialist.
Zhu Ning, deputy director and finance professor at Shanghai Jiao Tong University's Shanghai Advanced Institute of Finance, said he has been warning about a bubble in the gold price since last year.
"Apart from technical reasons, like institutions adjusting their holdings of gold, there's a logical base behind the plummeting price," said Zhu.
"The price of gold is determined by demand and supply, just like anything else," he explained. "We know the supply of gold is relatively fixed in many respects, so it's the appetite for gold that really matters in the equilibrium. The metal reached its peak last September, as investors worried that central banks pumping up money supply might erode their wealth. Now they suspect the US government may retire its quantitative easing earlier than expected, so it's time to move from gold to a bullish dollar."
He warned investors to be aware of risks in gold investment but added that the precious metal is probably a good long-term investment, especially for rookie investors.
Prices in the domestic market tracked gold's global decline. On the Shanghai Gold Exchange, the spot contract for gold of 99.99 percent purity slumped 11.3 percent in the past three days to 276.5 yuan per gram yesterday.
Gold for June delivery fell 12.5 percent during the same period to 275.09 yuan per gram on the Shanghai Futures Exchange.
Gold-related stocks also tumbled.
Zhongjin Gold Corp, the listed unit of China's biggest producer of the metal, lost 9.7 percent in the past three days to 12.34 yuan yesterday. Zijin Mining Group Co, China's biggest mining company, retreated 6.8 percent to 3.15 yuan.
Lao Feng Xiang Co, the Shanghai-based gold jewelry manufacturer and retailer, sank 11 percent to 19.36 yuan. Shanghai Yuyuan Tourist Mart Co, another chain of gold jewelry stores, shed 9 percent to 7.05 yuan.
Several institutions have lowered their estimate for gold prices. Bank of America Merrill Lynch predicted gold would decline to US$US1,200 an ounce before prices stabilize. French bank Societe Generale cut its price target from US$1,800 to US$1,500 an ounce.
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