High Gold Prices Dampen Festive Demand

As the Lunar New Year approaches, a time marked by traditional festivities and family reunions, the demand for gold jewelry surges in ChinaThis period, often associated with auspicious beginnings, sees numerous retailers promoting gold as a gift choice, seeking to entice consumers with special offers.

Recent reports indicate that well-known jewelers such as Chow Tai Fook and Lao Feng Xiang have introduced promotional activities aimed at boosting salesInterestingly, on January 10, reports showed that the retail prices of gold jewelry exceeded 800 RMB per gram, prompting some stores to offer discounts ranging from 40 to 70 RMB per gram

Additional perks included promotions like "buy gold, get silver" and reduced labor costs for crafting unique piecesThese strategies reflect a keen awareness among retailers of the significance consumers place on both sentiment and savings during the holiday season.

However, despite these promotional tactics, high prices have tempered consumer enthusiasmWhile the desire to purchase gold remains vibrantly alive, many potential buyers have opted to hold off on purchases, anticipating a potential drop in prices"Customers are curious if the discounts during the Spring Festival will be larger," explained a sales associate at a gold store near Shanghai's Bund, highlighting a common sentiment among buyers who are waiting for a more favorable market situation.

The gold jewelry market faces immense pressure

As the international gold price reached new heights in 2024, the retail price of gold jewelry in China followed suit, escalating from around 500 RMB per gram at the beginning of the year to surpassing the 800 RMB threshold

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With the cumulative increase nearly reaching 30%, it becomes evident that the gold market is under considerable strain.

Market performance illustrates the challenges faced by gold jewelry stocks, which have struggled dramatically in terms of both pricing and overall financial performanceFor instance, companies like Chow Tai Fook experienced a staggering decline of over 37% in stock value since early 2024, while other notable names in the industry, including Lao Feng Xiang and Chow Sang Sang, have reported losses as wellInvestors are now closely monitoring whether the sector can rebound or if it will continue to languish.

The decline in retail sales has also significantly impacted the overall industry performance

For example, Chow Tai Fook reported a sharp year-on-year fall of 20.4% in their revenue for the first half of the fiscal year, amounting to 39.41 billion HKD, with a net profit drop of 44.4%. Notably, their gold jewelry sales suffered a 21.6% plunge during the same period, revealing just how critical this product line has been to their overall business.

Amid these turbulent times, adjustments in retail strategies have become evidentChow Tai Fook saw a net closure of 239 retail outlets in the first half of 2025, markedly higher than the 145 stores closed in the previous quarterAs of September 2024, the group maintained 6,968 retail points in mainland China, of which about 77% were franchised units, illustrating a shift towards more variable costs amidst changing market dynamics.

In a similar trend, the Luk Fook Group reported a 27% drop to 5.449 billion HKD in revenue for the first half of the fiscal year, with a net profit of 434 million HKD, marking a 53% decline

With 175 stores closed in just six months, the severity of the situation has become increasingly clear.

Furthermore, Chow Sang Sang's financial results echoed the struggles of its peers, reporting a 13% drop in total revenue rounding off at 11.3 billion HKD for 2024, and a net profit decrease of 36.41% in the first half of the fiscal year.

Industry experts express concerns over the current market scenarioA representative from the gold consumption sector emphasizes the necessity for the jewelry market to innovate in response to the challengesThis could include enhancing product quality and design to resonate more with consumer preferences, alongside generating promotional campaigns more aligned with market demands to revive consumer interest and spending.

Gold prices pause in their rise

Since the beginning of 2024, gold prices have seen a remarkable increase, with COMEX gold futures breaking through significant price points, achieving levels of over $2800 per ounce and accumulating almost a 27% increase for the year

However, as we step into 2025, there appears to be a deceleration in this upward momentum.

Recently, analysts from Goldman Sachs revised their gold price forecasts, anticipating that the Federal Reserve will reduce the extent of interest rate cuts in 2025, thus downgrading the end-of-year price target for gold from $3000 per ounce to $2910. Insights from Goldman Sachs suggest that only a reduction of 75 basis points this year is likely, a shift in expectations that directly influences their gold price outlook.

Furthermore, a rising sense of market risk aversion has contributed to fluctuations in gold prices

Wang Xiang from Bosera Funds noted that with the market keenly observing the presidential inauguration on January 20, apprehensions regarding tariffs have intensified, leading to a surge in the demand for safe-haven assets such as the US dollar and goldThat said, resilient economic indicators from the US, particularly robust manufacturing PMI in December, have been supporting the dollar's strength and consequently placing downward pressure on gold prices.

Despite the short-term lack of momentum for price increases, the medium to long-term outlook remains supportive due to the persistent uncertainties surrounding geopolitical risks and central bank purchasesWang asserts that these factors will likely continue to bolster precious metal prices.

On January 7, 2025, the People's Bank of China and the State Administration of Foreign Exchange released data on official reserve assets, revealing that as of the end of December 2024, China's gold reserves reached 73.29 million ounces, marking an increase for the second consecutive month

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