Spring Festival sees healthy gold consumption…but what lies ahead?

A robust CNY holiday for gold retailers

Gold retailers saw a constant flow of customers during the holiday. Data from the Ministry of Commerce shows that gold and jewellery sales in China – dominated by gold products – rose by 24% y/y during the holiday.² And in Shanghai, gold consumption exceeded RMB1bn (US$141mn), a 14% rise y/y (Chart 1).³  Many other regions also experienced similar, if not stronger, growth in gold jewellery sales, according to the Ministry of Commerce and various news reports.⁴  Such prosperity was not limited to in-store purchases: sales on T-mall and JD both more than doubled during the holiday.⁵  We believe gold’s popularity was driven by: 

• the ongoing pursuit by consumers for value preservation amid economic uncertainties and local asset volatility; as a result, sales of gold bars surged
• the popularity of Year of the Dragon themed products⁶ 
• a sales boost from Valentine’s Day gifting demand
• a longer-than-usual CNY holiday.

Gold consumption during the period would have been stronger had it not been for wallet share competition from travel and other entertainment options (Chart 2). According to the Ministry of Culture and Tourism, 474 million domestic trips were made during the CNY holiday, accounting for a total tourism revenue of RMB633bn (US$89bn), a record high.⁷ Meanwhile, box office revenues reached an all-time-high of RMB8bn (US$1bn).⁸ Consumers’ surging interests in these have limited their budgets on gold consumption, especially given that prices are hovering around its record high.

What next?

Macro factors will continue to be key in driving China’s gold demand in 2024. For instance, China’s economic growth has been the fundamental driver of gold demand over the past few years, demonstrating strong positive correlation with gold consumption. The Bloomberg consensus forecasts a 4.6% rise in China’s GDP this year (Chart 3), compared to 5.2% in 2023.⁹ This potential deceleration likely stems from continued stress in the housing sector, depressed consumer confidence, as well as the challenging outlook for exports amid a global slowdown and the rising diversification in supply chains.¹⁰ 

Models are useful but simplify reality. For example, consumers’ pursuit of value preservation has provided meaningful support for gold jewellery sales in past years, and we expect this to continue. Meanwhile, the industry’s constant innovation will offer young buyers more stylish choices and this should help to solidify the dominance of gold products in jewellery stores.

But industry participants need to be mindful of risks, such as squeezing profits amid fierce competition in order to attract customers who are increasingly seeking low-labour-charged products. And this, combined with the fact that China’s gold jewellery market is becoming saturated, could lead to an industry consolidation. Finally, Chinese traditions consider 2024 a less auspicious year to get married, and this could result in lower-than-expected gold jewellery wedding demand.

Gold bar and coin demand should remain solid this year, although sales may not repeat the 28% growth surge of 2023 (Chart 5). Support from potentially lower interest rates may offset slower economic growth, leading to stable bar and coin sales in 2024 (flat y/y), according to our model.

2024 investment demand for gold in China may show stronger growth than anticipated if:

• the local central bank continues to report gold purchases, thus encouraging physical gold investors
• the housing market remains weak, pushing investors to other safe-haven choices such as gold
• the local currency weakens in the face of a widening interest rate spread between China and the US – such a scenario could result in higher demand for value preservation.