Gold ushered in the super "Golden Week"!
The Mid-Autumn Festival and the National Day are coming. As a traditional peak season for gold consumption, many consumers will walk into jewelry stores during the long holiday every year. What is slightly different this year is that the price of gold has recently hit a new high, and the retail gold prices of several jewelry brands such as Lao Fengxiang and Zhou Dasheng have exceeded that of 600 yuan per gram.
On September 27th, the main gold futures contract (AU2312) of Shanghai Futures Exchange closed at 466.9 yuan/gram, and hit an all-time high of 480.26 yuan/gram in intraday trading on September 15th.
According to the data of China Gold Association, the national gold consumption in the first half of this year was 554.88 tons, up 16.37% year-on-year, of which the consumption of gold jewelry was 368.26 tons, up 14.82% year-on-year. TF Securities found that the total retail sales of gold, silver and jewelry in August was 28.3 billion yuan, up 29.8% from the previous month, exceeding the average of 7.8 percentage points in the past five years.
The recently released list of Tik Tok’s goods in August shows that jewelry bloggers "Jewelry on the Cloud" beat Oriental Selection, Crazy Xiao Yang Ge and Qier Leo to top the list with sales of 807 million yuan.
The financial community saw in Beijing Caibai Jewelry and other stores that the scene was crowded and the salesmen were overwhelmed. People in the jewelry industry told the financial sector that the current gold price is indeed at a high level, and the National Day and Mid-Autumn Festival are definitely the peak seasons for gold consumption, so more jewelry experience activities will be created. In terms of consumption structure, all categories have increased since this year, among which gold has increased greatly, and investment gold bars have received more attention in the last quarter. According to industry insiders, the second half of the year is the traditional peak season for gold jewelry, and consumption data and corporate performance are expected to further improve.
Multiple factors push up domestic gold price increase.
In fact, while the domestic gold price has soared, the international spot price of gold has shown a downward trend since the end of August.
According to the macro statistics of Tianfeng, from August to September 24th, Shanghai Gold rose by 3.7%. However, at the same time, London gold saw a saw in the range of $1,880-1,950 per ounce, with a cumulative decline of 2.0%. Even taking into account the 2.1% rise of the US dollar against the RMB, Shanghai gold showed an obvious premium to Lunjin.
In this regard, brokers summed up four reasons. First of all, the depreciation of the exchange rate has stimulated institutional gold investment demand and household consumption demand.
Since April this year, the RMB has rapidly depreciated, and the offshore market price once fell below 7.3, breaking through the upper limit of exchange rate box operation. The central bank uses counter-cyclical factors and lowers the foreign exchange reserve ratio to stabilize the RMB exchange rate.
When the expectation of depreciation has not been reversed, it has become an option for investors to increase their holdings of gold to hedge the potential depreciation risk.
Second, import restrictions have caused the internal and external gold prices to continue to deviate.
Historical data show that at most historical points, the price of London gold is close to that of Shanghai gold after exchange rate adjustment, which shows that the market pricing of gold is very effective.
But this time, there is a premium of about 5% between them. At present, the implied exchange rate of RMB against the US dollar in the gold market is 7.6-7.7, which is much higher than the current offshore exchange rate of RMB against the US dollar of about 7.3.
According to the macro analysis of Tianfeng, in theory, the arbitrage space can be smoothed out by increasing the import of spot gold. However, when the RMB depreciates rapidly and the exchange rate is close to the upper limit of the box operation, the central bank may control the import quota of gold to avoid the outflow of funds through gold and aggravate the depreciation pressure. Therefore, the premium of internal and external gold prices cannot be bridged, which is reflected in the continuous deviation between the implied exchange rate and the actual exchange rate.
In terms of data, in the first half of this year, China’s gold consumption was 554.9 tons, a year-on-year increase of 16.37%. However, in the same period, the output of gold was only 178.6 tons, up 2.24% year-on-year, and the consumption was nearly 3.1 times of the output, so the premium in the middle must be made up by imported gold.
However, the import of physical gold this year, the net import of gold from Hong Kong, China to the mainland in July was 25.769 tons, which was lower than 34.648 tons in June. The total amount of gold imported through Hong Kong, China decreased by 21% to 30.239 tons compared with June, and the net import decreased by about 26% compared with June. Import restrictions have caused the internal and external gold prices to continue to deviate, which is reflected in the obvious premium of Shanghai gold compared with London gold.
Based on this, Tianfeng macroscopically pointed out that the superficial reason of Shanghai gold premium is that the gold investment demand of domestic institutions and the gold consumption demand of residents jointly drive the rise of RMB gold price, and the fundamental reason for the premium is the arbitrage failure caused by import restrictions.
Third, domestic interest rate cuts and poor return on investment are catalysts for domestic gold premium.
The article "Weird Gold Price Difference" in Yingcai Magazine on September 25th pointed out that domestic interest rate cuts and overseas interest rate hikes will inevitably lead to the return of foreign capital and some domestic capital outflows. At the same time, successive interest rate cuts will also lead to the overall decline of risk-free interest rates such as the yield of government bonds and time bank deposits, and the risk in the capital market will intensify, leading to a decline in the overall risk appetite of the market.
According to the article, investors at this time can’t get a satisfactory rate of return from the equity market or the money market, so they can only turn their original investment into defensive assets such as gold, which is one of the core reasons for the surge in demand for gold.
Fourth, the central bank’s purchase of gold is also an important factor to promote the rise of gold prices.
Guangfa Futures pointed out that large-scale continuous purchases of gold by central banks are also one of the important factors driving the price of gold to rise. According to the statistics of the World Gold Council, as of June 2023, the global central bank’s total gold reserve was about 35,730.7 tons, an increase of 37.16 tons compared with the first quarter. In the second quarter of this year, the global central bank’s gold purchase rate slowed down to 102.9 tons, but it set a record of 387 tons in the first half of this year.
In August, China’s gold reserves increased by 32.03 tons to 2,165.42 tons, increasing its holdings for 10 consecutive months; The Turkish central bank re-increased its gold reserves by 17 tons to 457 tons in July; In August, LMBA London gold stocks dropped sharply by 2.468 million ounces to 282.5 million ounces (about 8,787 tons), and the central bank’s demand for gold purchases continued to reduce stocks.
The high consumption of gold jewelry will continue.
Behind the madness of gold price, can the consumption of gold jewelry continue to rise? Huaxi Securities Research Report pointed out that from the perspective of volume and price splitting, the high consumption of gold jewelry will continue.
From the price point of view, under the current complex global environment, the short-term and medium-term gold prices may still fluctuate upwards. The complex international situation such as the cooling of inflation in the United States (the expected slowdown in interest rate hikes) and the situation of the Russian-Ukrainian war will continue to push the trend of gold prices under risk aversion; In addition, the trend of domestic gold price is stronger under the expectation of exchange rate, which leads to the further amplification of domestic and foreign gold price difference.
In terms of sales volume, the change of consumption structure and consumption scene drives the total volume to expand again. Compared with diamonds and other categories, gold has a stronger value-preserving property, and its consumption preference has increased significantly under the background of lower consumption expectations; The proportion of wedding demand continues to decrease, and self-satisfaction consumption has become the dominant factor for consumers to buy gold jewelry. China’s gold jewelry consumption has completed scene switching, driving the medium and long-term stability.
There may be three major trends in the future development of the industry: 1. It is still in the channel-driven stage in the short term, and the industry concentration is expected to continue to increase; 2. From "wholesale mode" to "new retail mode", the new paradigm will win the future; 3. "Product +IP" may become a more feasible development path for domestic jewelry brands.
According to Huaxi Securities, China’s gold jewelry industry has entered a new stage of development, characterized by higher gold price+higher consumption+product process upgrade. In the short term, gold jewelry will still dominate the core demand, and it is expected to maintain rapid growth in the future.
A jewelry listed company also clearly mentioned in the third quarter performance forecast that with the continuous improvement of gold jewelry products’ technology, the lack of cultural richness, the decline of appearance design, and the continuous warming of demand for self-satisfaction and pan-marriage, consumers’ willingness to buy has increased, which has driven the company’s sales revenue to grow. At the same time, in the third quarter of 2023, the domestic gold price fluctuated upward and hit a record high, which stimulated the consumer demand of gold products to rise, and the hottest "Huang Jinbao" may have just begun.
This article comes from: financial circles