Chinese gold demand tumbles 22pc in third quarter as higher price curbs demand

World Gold Council data shows Chinese demand plunge in the third quarter amid changing consumer preferences, price-induced selling and rise of experience-seeking millennials

PUBLISHED : Tuesday, 08 November, 2016, 10:30pm
UPDATED : Tuesday, 08 November, 2016, 10:44pm

Chinese gold demand plunged 22 per cent on year in the third quarter to a four-year low, as buoyant prices of the yellow metal, which surged to a three-year high in July, crimped consumer demand.

“The fourth quarter has started on a more positive note in China, thanks to the price drop in early October,” said the World Gold Council, which represents the world’s largest gold producers, in a report on Tuesday.

“Consumers were swift to respond to lower prices and remain alert to any further buying opportunities.”

The council pointed to the approach of key gold buying occasions, such as the festival and wedding season in India, Christmas in western markets and the Chinese new year as factors supporting demand. China and India are the world’s largest gold markets.

“But that is not to say that we expect a clear revival. Pressures remain,” the report said. “Government policy in India is disruptive to the market ... Chinese consumers are exhibiting changing tastes. The consumer environment in European markets and the US remains hesitant.”

Gold prices have fallen around 9 per cent in yuan terms since early October, on the back of strong economic data in the United States that pointed to a growing likelihood of an interest rate hike next month, which would dampen investment demand for bullion which does not earn interest.

Chinese gold jewellery consumption dropped to 141.5 tonnes in the third quarter, from 180.6 tonnes in the year-earlier period, the council said. The year-on-year decline in the year’s first nine months was 18 per cent.

The industry faces the challenge of the rising popularity of ‘experiential’ purchases at the expense of physical consumption
World Gold Council

Globally, gold demand fell 10 per cent year-on-year in the third quarter, but rose 7 per cent year-to-date, as higher investment demand offset weaker jewellery, technology and central bank demand.

The council attributed the third-quarter Chinese demand decline to a 19 per cent year-on-year gold price rally to US$1,335 an ounce, and the “high base effect from the mini boom” in the third quarter of 2015as the yuan’s depreciation saw investors buy gold as a hedge against a further drop in the currency.

Households have added to their cash holdings amid a sluggish economy, surging home prices and higher rental costs for accommodation.

Despite a better demand outlook in the fourth quarter, the council cautioned that a shift in consumer spending behaviour, especially among the younger generation, has led to fundamental changes in Chinese gold consumption.

“The shift away from more overt material consumption contributed to the 22 per cent year-on-year decline in demand for gold jewellery,” the report said. “The industry faces the challenge of the rising popularity of ‘experiential’ purchases at the expense of physical consumption.”

It cited a preference by“millennials” - people in their early thirties or younger - to spend on experiences such as travel that can be shared over social media, as a factor.

Of this year’s golden week tourists 31 per cent were millennials, while the number of mainlanders travelling during the annual holiday has grown by almost 25 per cent over the last three years, the report said.

Recyling helped to recover 123.5 tonnes of gold through the January to September period, a 45 per cent rise on year, the council said, noting that consumers sold some of holdings amid the price gain.

Some analysts have forecast higher gold prices in the next two years.

French bank Societe Generale’s head of metals research, Robin Bhar, forecast an average gold price of US$1,280 an ounce this year, rising to an average of US$1,325 next year, citing “high uncertainty” in US policy direction and the possibility that the US presidential election results may be contested.

Meanwhile, ANZ’s senior commodity strategist Daniel Hynes has projected gold at an average of US$1,283 this year and US$1,391 next year, citing rising inflation expectations that could spur more gold demand to hedge inflation.