Ray Jia

The Beijing International Jewellery Fair kicked off on 14th November, attracting thousands of exhibitors from over 20 different countries and regions. On the coldest day so far this year in Beijing, exhibitors shared the hottest trends in the gold jewellery industry.

• The Shanghai Gold Benchmark price saw a modest decline in September, with the local gold premium falling sharply due to the stabilising currency and increasing gold imports.
• Led by the declining gold price and the soft physical demand, both Au(T+D) and Au9999’s trading volume dropped last month while loadouts from the Shanghai Gold Exchange (SGE) levelled off.
• After hitting the lowest level since 2017 in July, gold imports to China rebounded in August.
• The People’s Bank of China (PBoC) added another 6t to its gold reserves in September. After ten consecutive purchases, the PBoC now holds 1,948t gold in its reserves.

• Inflation is on the rise in China, reaching 2.8% in August 2019, the highest in 18 months; leading economists expect it to rise further by the end of the year
• African swine flu has wiped out a third of China’s pig livestock since last August, contributing substantially to the rising inflation
• Looking back at history, when inflation rose above 3% the nominal return of the local gold price has averaged 17%

• In August, Shanghai Gold Benchmark (PM) rose 11% to 355 yuan/gram and the local gold premium peaked at a six-year high.
• While Au(T+D)’s trading volume in August surged to a new all-time high, gold withdrawals from the Shanghai Gold Exchange (SGE) declined again last month.
• Gold imports dropped to 44t in July, the lowest since 2017.
• The People’s Bank of China (PBoC) added another 6t to its gold reserves in August.

In recent years, expansion into tier three and four cities has been a major strategic focus for many Chinese jewellery retailers. Chow Tai Fook (CFT), a leading retailer based in Hong Kong, added 251 points of sales (POS) in lower tier cities in 2018 compared to only 50 in tier one cities. Lao Feng Xiang, another large jeweller with 3,521 POS domestically, also prioritised expansion into lower tier cities.

• Chinese gold prices rose modestly in July 
• Au(T+D)’s trading volume in July extended its June surge
• The local gold premium saw a much lower volatility 
• Imports registered another decline, dropping to 55t in July
• Gold withdrawals from Shanghai Gold Exchange (SGE) experienced the first rise in four months 
• The People’s Bank of China (PBoC) added another 10t to its gold reserves

Recycled gold is an important source of gold supply . In 2018, the volume of recycled gold reached 1,168t, accounting for over 25% of total supply globally. Recycled gold is also an important source of supply in China, amounting to 146t, or 20% of domestic supply in 2018. Recently, China’s recycled gold market has experienced some exciting developments which could improve the efficiency and transparency of the industry. 

Summary

• Shanghai Gold Benchmark price hit 319.2 yuan/gram – highest level since its introduction in April 2016
• Au(T+D)’s trading volume in June reached second highest level on record – 2,062t
• The local gold premium rose sharply 
• Imports continued to slide in May, dropping to 69t
• Gold withdrawals from Shanghai Gold Exchange (SGE) fell again last month 
• PBOC added a further 10t to its reserves in June

Having risen over 3% in May, the loco-China gold prices continued to soar in June. Au(T+D), the most liquid and margin-traded gold contract at Shanghai Gold Exchange, rose 8.71%, the best monthly performance in 3 years.

In March the amount of gold that left Shanghai Gold Exchange vaults - also known as the SGE loadouts - hit 218t. This is a chunky number. It is the highest March on record, almost 30% higher than the average monthly loadout since the start of 2016 and a 13% increase on March 2018.