Gold Sales Decline in Hong Kong Signals Lower Chinese Demand

Gold sales at jewelers in Hong Kong have declined as mainland shoppers buy less, the Chinese Gold & Silver Exchange Society said, adding to signs of a slowdown in consumption by the world’s largest user after 2013’s surge.

Demand dropped about 30 percent from a year ago during the Golden Week break that began May 1, according to Haywood Cheung, president of the century-old bullion bourse. The holiday this year was shorter and there were fewer visitors as luxury spending fell and gift-giving slowed, he said in an interview.

While China surpassed India as the biggest user last year, the buying frenzy sparked by gold’s slump into a bear market last April hasn’t been repeated, according to Heraeus Metals Hong Kong Ltd. Lower consumption in China this year may help to extend declines in prices as investors press on with sales from exchange-traded products. After a special year in 2013, the situation is back to something like 2012, according to Cheung.

“Before, when they walk into a jewelry shop, they spend about HK$10,000 ($1,290), and now it’s about HK$5,000 to HK$6,000,” Cheung said on May 12, citing estimates by the society’s members, which include Chow Tai Fook Jewellery Group Ltd., the largest listed jewelry chain. “Also, travel is so common now that people don’t have to wait for the Golden Week.”

Gold traded 0.3 percent lower at $1,302.58 an ounce at 3:19 p.m. in Hong Kong, taking losses over the past year to 6.5 percent. The metal fell 28 percent in 2013 to end a 12-year rally, with the lower prices spurring consumption across Asia. In April 2013, bullion fell from an intraday high of $1,604 to a low of $1,322.06.

Largest User

Consumption in China rose 32 percent to a record 1,065.8 metric tons last year, making up about 28 percent of global usage, according to the World Gold Council. That’s expected to climb to at least 1,350 tons by 2017 as wealth rises, the producer-funded organization said last month. The nation’s jewelry purchases of almost 669 tons in 2013 accounted for 30 percent of the global total, according to the council.

“Last year was something special,” Cheung said. “We’re back to something like 2012. Wait till next year, we’ll start to pick up gradually and come back to 2013 levels.”

Gold climbed 8.4 percent in 2014, rising to a six-month high of $1,392.33 on March 17, on haven demand spurred by tension between Russia and Ukraine. Russian Foreign Minister Sergei Lavrov said yesterday that Ukraine was sliding into a civil war.

Unique Month

Chinese gold and silver jewelery sales fell 30 percent to 20.8 billion yuan ($3.3 billion) in April from a year earlier, according to National Bureau of Statistics data. While the on-year comparison is misleading because April 2013 was unique, with bullion’s slump spurring unprecedented buying, the lower spending in China signals lower gold prices for now, Macquarie Group Ltd. said in a report yesterday.

“If we compare April 2014 to April 2012, a more normal month, we find sales were 18 percent higher,” Macquarie said in the report. “At the end of the day what matters for the international gold price is expenditure not volumes -- and that is trending downwards.”

An anti-corruption drive in China has hurt gold demand this year, which is back at 2012 levels after an exceptional 2013, Dick Poon, general manager at Heraeus, a precious metals trader and refiner, said in a May 8 interview. The Communist Party has started a campaign to tackle a culture of bribery that President Xi Jinping said threatens the government’s legitimacy and jeopardizes growth in the largest economy after the U.S.

Slower Growth

Data this week showed decelerations in industrial output and investment growth, adding to signs the country may miss this year’s expansion goal of about 7.5 percent. Analysts forecast growth of 7.3 percent, which would be the slowest in 24 years, based on the median estimate in a Bloomberg survey.

Net gold imports into mainland China from Hong Kong were about 275.6 tons in the three months to March compared with 210.5 tons in the same period last year. Still, net shipments fell to 80.6 tons in March from 111.4 tons in February and 130 tons a year earlier, according to Bloomberg calculations based on data from the Hong Kong Census and Statistics Department.

Goldman Sachs Group Inc. is among banks forecasting further declines for gold as the U.S. Federal Reserve winds back monthly bond-buying. Bullion is forecast at $1,050 an ounce in 12 months, the bank said in a May 13 report.

Holdings in the SPDR Gold Trust, the largest bullion-backed ETP, stood at 780.46 tons yesterday, the lowest level since January 2009. The assets resumed a decline last month after rising in February and March.

The society, which started in 1910, has 171 members including Heraeus and HSBC Holdings Plc, one of the banks that participates in the so-called London gold fixing. The group started a gold contract quoted in yuan in 2011 to tap rising demand for both bullion and the Chinese currency.

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