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Gold trading is becoming increasingly active with investors divided on whether prices are set to rise or continue to fall.Photo: Xinhua

Buyers flock to gold as price drops

Investors stock up on jewellery and gold bars as price falls to lowest in five and a half years on expectations of a US rate rise, China stock woes

Gold trading firms and jewellery shops have been doing brisk business as prices drop, falling to their lowest in five and a half years last week.

"We have seen our customer numbers almost double. Sales have gone up 10 to 20 per cent in the past few weeks," said Henry Wu, a director at Lee Cheong Gold Dealers, a gold trading firm in Sheung Wan.

"It's actually not a major surprise as every time gold prices fall, mothers will buy to prepare for their daughters' weddings while some will stock up on gold bars as an investment."

It is traditional in China for a bride's relatives to give gold jewellery as gifts. Many mainland tourists prefer to shop for gold in Hong Kong where they are assured of quality and design.

Wu and his father are veteran gold traders whose family has been selling gold and jewellery for decades. He said his shop had been particularly busy since the price of gold dropped to US$1,003 an ounce on Saturday - the lowest since 2010.

"Whenever the gold price is down, sales of physical gold bars and gold jewellery shoot up. People just want to use the opportunity to buy low. I expect this to continue as there is no sign gold prices will recover any time soon," Wu said.

"We don't just get mainland tourists. Hong Kong investors and customers are also buying up gold jewellery and gold bars."

Several investment banks such as HSBC, Goldman Sachs and Citi have a negative outlook on gold, with some experts predicting it to go under US$1,000 per ounce.

HSBC on Monday lowered its forecast for the average gold price this year to US$1,160 per ounce from US$1,234 previously. It also lowered its prediction for next year to US$1,205 from US$1,275 per ounce earlier. It, however, kept its long-term price forecast of US$1,325 unchanged.

Gold was hovering around US$1,085 an ounce yesterday.

"There is a combination of reasons for the recent sharp drop in gold prices. The main reason is the strong US dollar and expectations of a US interest rate rise later this year. Whenever the US dollar strengthens, gold prices usually weaken," Wu said.

"In addition, the slowdown in the Chinese economy and the ongoing Greek crisis are also affecting the overall investment sentiment," he said.

Besides physical gold, some investors trade in gold purely for investment purposes via brokerage firms.

"We have definitely seen investors become more active these days trading gold in light of the sharp fall in prices," said Joseph Tong Tang, executive director of Sun Hung Kai Financial.

"Some investors may want to hoard gold at a low price and sell later. But then, some investors also believe gold will continue to fall. This has led to many buyers and sellers in the market and gold trading has become very active," Tong said.

He believes the situation will continue as the price of gold, like the stock markets, will continue to be volatile in the near term.

"People are waiting for news on the US interest rate rise. Mainland stock markets are still very uncertain. The Greek crisis has had an impact on the euro and other currencies," he said.

This article appeared in the South China Morning Post print edition as: Buyers flock to gold as price declines
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