China Dowry Filled With Gold Signals Gains for Jewelers

Fang Yan figured a 12 percent drop in gold prices since January made this an ideal time to find some jewelry for her 18-year-old daughter’s dowry. She was too late.

All the bracelets of the sort she wanted to buy on a visit to Macau last week were gone as bargain-hunting Chinese shoppers had snapped up jewelry, coins and bars. At least 30 tons of gold were sold between April 29 and May 2 in Hong Kong, up more than 50 percent from last year, according to estimates by the city’s Chinese Gold & Silver Exchange Society.

“All the big chunky bracelets were sold out, leaving only those very thin ones,” said Fang, whose daughter doesn’t have a boyfriend, let alone a wedding date. Instead, Fang bought two necklaces for her daughter-in-law and a ring for herself.

Retail sales of gold across China tripled on April 15 and 16 as the metal fell, according to the China Gold Association. Consumers kept buying over last week’s national Labor Day holiday, boosting demand at stores such as Chow Tai Fook Jewellery Group Ltd., the world’s largest listed jewelry chain, and smaller rival Chow Sang Sang Holdings International Ltd.

“The sales volume is so high it is overall net positive for earnings” at jewelry chains, said CLSA Asia-Pacific Markets analyst Aaron Fischer.

Standard Chartered on April 26 boosted its rating on Hong Kong-based Chow Tai Fook to outperform from in-line with a HK$12.10 price target on the stock, versus a HK$10.46 close yesterday.

Double Tiffany

“The recent sharp correction in the price of gold has substantially stimulated demand,” noted Standard Chartered analyst Emily Lee.

China was the second-largest consumer of gold jewelry after India last year. Chinese buyers helped push Chow Tai Fook’s revenue to $7.3 billion in the year ended March 2012, almost double that of Tiffany & Co., the largest U.S. luxury jewelry retailer.

Chow Tai Fook had 1,556 jewelry outlets in mainland China and 98 in Hong Kong, Macau and other parts of Asia as of September. Chow Tai Fook sold a record 10,000 bracelets in Hong Kong on April 16, executive director Chan Sai-cheong said.

“Some middle-aged customers and grannies bought as many as 30 bracelets at one go,” Chan said. “They took advantage of the drop in gold prices, buying gifts for their kids or grandchildren even though they are not getting married anytime soon.”

Bracelet Shortage

As demand surged, Chow Tai Fook’s nine factories in April produced around 1.2 million pieces of pure gold products, double the monthly average of 600,000 pieces. More than half the company’s annual revenue came from gold products in the year ended March 2012, according to data compiled by Bloomberg.

“Workers at our factories are taking shifts around the clock,” Chan said.

Smaller rival Chow Sang Sang’s May Day holiday revenue jumped 60 percent, said Dennis Lau, director of sales operations. That was still below the doubling Lau had expected. He blamed that on shortages, especially of bracelets.

Hu Ying, a 29-year-old technology company executive from Tianjin spent 23,000 yuan ($3,744) on two gold bracelets and rings at a Chow Sang Sang shop in Hong Kong’s Causeway Bay shopping district. “I wouldn’t have bought as much if there hadn’t been a drop in gold prices,” Hu said.

Bottom Seekers

Chow Sang Sang, China’s second largest listed jewelry chain, with revenue of $2.4 billion last year, has gained 7.9 percent since April 16. Chow Tai Fook has risen 8.5 percent over the same period, while Tiffany has added 6.4 percent. Chow Tai Fook trades at 18 times projected earnings, versus 12 for Chow Sang Sang and 22 for Tiffany, according to data compiled by Bloomberg.

Bullion slumped into a bear market in April even as central banks printed money on an unprecedented scale, Europe’s debt crisis spread and the International Monetary Fund made a fourth consecutive cut to its 2013 economic growth forecast.

Gold’s drop at a time of record highs in U.S. equities underscores how some investors have lost faith in the surge that drove prices as much as seven times higher over the 12-year bull run. Gold traded at about $1,454 an ounce in Singapore on May 8, versus $1,675 on Dec 31.

Further drops may not spur as much buying because consumers will likely hold off, waiting for it to hit a bottom, said Larry Cho, an analyst at CIMB Securities HK Ltd in Hong Kong.

“April was exceptional,” he said. “But it’s hard to say whether the short-term buying momentum could translate into a good second quarter.”

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