China’s gold markets under strain

China’s gold markets under strain as horde of new buyers hunts for stable investment.

April has been a busy month for the Hualin International Jewelry Market in Guangzhou. A scrum of eager buyers has descended upon the venue, looking to join a new gold rush as prices soar and the precious metal takes on new life as a vehicle for investment.

Standing out as one of the few bets considered safe in China at present – with stocks, property and banking having lost their lustre in an environment of heightened uncertainty – gold has not only attracted new buyers, but also provided opportunities for the country’s middle class and youth to cash out.

The Guangzhou market, originally known for its bustling jade and jewellery trade, has been “flooded” with newly opened gold stores, with dozens emerging according to a store owner earlier this week.

“The number of customers is also increasing day by day,” said the owner, who asked not to be identified by name. “Sometimes it feels like a crowded wet market.”

“Today’s buy-back price is 554 yuan (US$77) per gram,” the merchant said. “Just now, a lady who got married last year sold me the gifts she received at her wedding, including necklaces, pendants and bracelets.”

The retail price for gold from major brands, including Chow Tai Fook and Chow Sang Sang, had risen to over 730 yuan per gram as of Friday, a multi-year high. Previous monthly peaks were observed at around 630 yuan per gram in January and 600 yuan per gram in December.

The People’s Bank of China, the country’s central bank, bought 160,000 ounces of bullion in March to bring its total reserves to 72.74 million ounces – its 17th consecutive monthly purchase according to official data – as the nation seeks to diversify its holdings away from US bonds amid frayed bilateral ties.

Rapid price changes have made for a mercurial scene. “From the beginning of the year until now, there have been customers buying gold bars for tens of thousands, hundreds of thousands of yuan,” he said. “But since the current price is extremely high, consumers are becoming cautious. Most of the new customers are buying products with lower grams.”