Focus on Fundamentals: Revival in the Chinese Jewelry Market

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by Peter Schiff, Schiff Gold:

The Chinese gold jewelry market reversed three years of declines in 2017, marking its first gain since a 2013 boom. According to a report released by the World Gold Council, the modest increase in gold jewelry demand last year could mark a return to sustained growth thanks to continued efforts to reinvigorate the industry through innovation, along with growing Chinese incomes.

The Chinese jewelry market is an important component in the overall global demand for gold. Jewelry accounts for more than half the yearly gold demand, and the Chinese make up about 30% of the gold jewelry market.

According to the World Gold Council, demand for gold jewelry in China more than tripled over the past 15 years as the economy expanded and individual wealth grew. The boom peaked in 2013 when low gold prices sparked a buying frenzy. But rapid success led to problems in the industry, including a record number of stores, excess capacity and fierce price wars.

After three years of declining demand, the industry appears to have turned the corner. After a solid performance in 2017, demand for gold jewelry in the world’s top gold market was up 7% in Q1 2018, coming in at 187.7 tons, according to the WGC. That marked a three-year high. Demand was buoyed by jewelry themed around the Year of the Dog, which appealed to consumers buying during the Lunar New Year holiday. The start of the week-long holiday coincided with Valentine’s Day, which further boosted what is often called the love trade.

According to the WGC, a “painful period of reinvention” has helped turn around the gold jewelry industry in China.

Rather than relying on traditional consumers buying jewelry purely for its gold content, goldsmiths now undertake extensive jewelry market research to get to know their customers better. They increasingly try to meet the needs of modern consumers by offering a more diverse product mix, designing more appealing jewelry and optimizing sales channels. Greater focus has been placed upon increasing the adornment value of jewelry and fulfilling the desires of China’s gold market consumers who wish to express their identity, gain social recognition and embrace change.”

The World Gold Council has projected that rising incomes in China, as well as India – the world’s leading consumers of gold – will have a major impact on gold demand in the coming years. China’s income growth is expected to come in at around 6.4% in 2018. And India’s economy is expected to be one of the fastest-growing in the world next year, expanding at an even faster rate than it did between 2012-2014. Consumers in both of these countries buy a lot of gold, so this bodes well for the broader market for the yellow metal.

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