The retail boom has had repercussions for the city. People have become accustomed to seeing their local noodle shop or plumbing supplies store subsumed into yet another franchised outlet selling yards of gold chains. Locals have also noticed that prices are going up, partly, if not mostly, because the retail boom has driven up lease costs.

But the retail industry is also a substantial employer in the city, with more than a quarter of a million people employed in the sector last year, and many of those working in watch and jewellery shops.

So the jewellery retail boom may have brought a mixed bag to Hong Kong, but there is no doubting its impact.

And, for all that is good and bad about the bling merchants, the signs are that this boom is nearing its peak. After years of spectacular expansion, sales and profit growth for the sector is flattening.

Hong Kong's jewellery retailers are feeling the impact of slowing economic growth on the mainland. The sector is a sign perhaps of a turning point in the mainland's epic consumer boom.

Mainland shoppers' appetite for gold powered much of Hong Kong's jewellery retail boom.

Mainland visitors contributed more than half the HK$89 billion sales generated by Hong Kong's watch, jewellery and gift retailers last year, according to government data.

Rich mainlanders like gold partly because it is perceived as a form of currency, and one that does not get taxed or attract much scrutiny. Gold also serves as a hedge on inflation, and people have also bought it as a punt on rising gold prices.

Spot gold prices rose 77 per cent from the start of 2009 to the end of 2011. Over this period, the market for jewellery, watches and gifts in Hong Kong doubled.

But the sands are shifting.

According to a recent report by UBS Chief Investment Office Research, Hong Kong's jewellery retail sector has been hit by the double blow of declining growth in visitors and falling gold prices.

As the report notes, the number of cross-border visitors is still rising, but at a slower rate than before. In the first two months of the year, the number of visitors from the mainland rose 19 per cent, compared with the 31 per cent growth in the previous two months year on year.

This decline reflects the fact that, with each annual rise, the base for comparison gets bigger. It gets harder each year to sustain double-digit percentage rises. But the trend clearly also suggests the flow of cross-border visitors to Hong Kong may be nearing its peak, which itself is a reflection of slowing economic growth on the mainland.

For an industry that has built massive chains of shops on expectations of perpetual growth in numbers of mainland visitors, this is bad news.

The flattening of this growth arc suggests that mainland tourist flows previously mobilised by beneficial visa policies - especially the multi-visa policy for Shenzhen and Guangzhou residents - may have maxed out already.

The recovery of the Japanese and Thai tourist markets after last year's natural disasters may also be diverting mainland tourism away from Hong Kong this year.

As the growth in mainland visitor numbers plateaus, so does the growth in sales for Hong Kong's jewellery retailers. Mainland visitors drive Hong Kong jewellery retail sales. The two dynamics are closely linked and, indeed, slowing growth in mainland visitors has been matched by slowing growth in sales for Hong Kong's jewellery and watch retailers.

The combined sales of jewellery, watches and gifts in the first three months of 2012 grew 17 per cent compared with the year-earlier period. That pales in comparison with the 66 per cent rise year on year seen in the first half of 2011.

This slowdown is having a particular impact on the jewellery retailers' same-store sales growth, a standard measure that analysts use to track a retailer's performance and profitability.

For several of Hong Kong's listed jewellers, same-store sales growth was as high as 60 per cent in the second and third quarters of 2011. By the fourth quarter, the figure fell by half. Some retailers are expected to report single-digit gains for the first quarter of this year.

Falling foot traffic is part of the problem. Retailers are also grappling with falling gold prices. Following years of strong gains, gold prices have been flat this year, with a trend towards mild decline.

The steady appreciation of gold over the past three years has seen Hong Kong jewellers enjoy profits based on revaluation of gold jewellery inventories. Typically, jewellers will hold three months of gold inventory; for some, the contribution of these revaluation gains last year was as much as 20 per cent of bottom-line earnings.

It is unlikely these gains will be repeated this year. Jewellers may need to hedge carefully to avoid losses on inventory if gold prices continue their current descent.

Jewellery sales are directly correlated with the price of gold. As gold prices go up, so do jewellery sales and retailers' profits. If gold prices go flat or down, the reverse happens.

Jewellers may start to see revenue declines in the third quarter, unless they can offset the effect by selling more high-ticket items. This latter scenario seems unlikely in Hong Kong, given anecdotal evidence that weakened consumer sentiment in the mainland has postponed purchases of big-ticket discretionary items.

Analysts and investors are a skittish crowd. Growth figures are projected over long time frames - which is why investors err on the side of euphoria when a sector goes through a period of strong growth, and why they panic when growth rates start to fall.

Hong Kong's jewellery sector is sensitive, in particular, to the measure of same-store sales.

A decline of same-store sales tells investors that a jewellery chain has overexpanded. It is a key point of vulnerability because, typically, shops are committed to three-year leases, which means they cannot easily wind down if they suddenly start generating losses.

A 1,000 sq ft jewellery retailer paying more than HK$2,000 per sq ft per month could suffer a drastic swing in profitability should foot traffic and gold prices take a dramatic dive at the same time.

Carl Berrisford is an analyst with UBS Wealth Management