Shoppers in China lined up for gold this week, while in Hong Kong they rushed to buy bracelets and in India sought jewelry for weddings not set until December. The metal’s biggest price drop in three decades provoked the clamor.
From Zaveri Bazaar in Mumbai, India’s largest bullion market, to Australia’s Perth Mint, where sales doubled from last week, consumers headed to shops after the commodity entered into a bear market last week. As gold plunged 13 percent in the two sessions through April 15, retail sales tripled across China on April 15-16, the China Gold Association reported.
The frenzy appeared in India and China, the biggest gold- consuming nations, with cultures that traditionally acquire the metal for brides, babies or strongboxes. This year’s 18 percent decline may reignite demand that last year fell for the first time in three years, with Asian investors in particular seeing the drop as a buying opportunity.
“The culture in Asia is such that they will absorb the physical metal when the price drops,” Dick Poon, general manager at refiner and trader Heraeus Metals Hong Kong Ltd., said in a telephone interview. “Jewelry demand is improving and industrial customers are also buying on the dip.”
In India, where coins and mass-market jewelry often are priced by weight, demand in the world’s biggest buyer during recent days was the most this year, the All India Gems & Jewellery Trade Jewelry Design Federation reported. Daily customer traffic in Hong Kong and Macau rose as much as 25 percent April 13-16, said Chow Tai Fook Jewellery Group Ltd. (1929), the world’s largest jewelry chain.
‘Built Into DNA’
“We are buying gold after two years, and we will buy some more if prices fall further,” Yogender Gyan, 29, said in an interview in a jewelry store in New Delhi’s Connaught Place retail area, where shoppers outnumbered salesmen by about 5- to-1. Urged by his mother, the blue jean-clad physics teacher went shopping on his break and said he saved 5,000 rupees ($92) compared with a week ago on earrings for his sister.
Owning gold “is built into the DNA” in Asia, said Grant Williams, portfolio manager at Vulpes Investment Management Ltd. in Singapore, which manages $280 million. “Whenever we get these meaningful sell-offs, there’s always a pick-up in demand for physical gold. It’s a very different attitude you get in places like China, Hong Kong and India than you do in the U.S.”
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In London, the scene was calmer. Fewer customers entered Baird & Co., a bullion merchant in Hatton Garden for trade buyers, and goldsmiths J Blundell & Sons Ltd. next door, during the lunch hour. Customers at ATS Bullion were thinned as the Strand road was cordoned off for the funeral of former U.K. Prime Minister Margaret Thatcher.
‘Massive’ Buying
A 24 carat 1-ounce Brittania gold coin sells for about 1,000 pounds ($1,525), down from about 1,080 to 1,090 pounds last week, ATS Chief Executive Officer Chris Burrow said in an interview. He said buying earlier in the week was “massive.”
Gold futures fell to a two-year low of $1,321.95 an ounce on April 16 on growing optimism that an economic recovery will curb demand for a protection of wealth. The metal’s two-day slump through April 15 was the most since January 1980. Gold for immediate delivery dropped 0.8 percent to $1,365.10 today.
The sell-off in gold was sparked by investor concern that European governments may have to follow Cyprus in selling part of their holdings and exacerbated as the metal fell below so- called technical-support levels, Goldman Sachs Group Inc. said April 16. BlackRock Inc. (BLK) said that it was a “panic event.”
Sales Volumes
For retailers and refiners the price plunge is proving a boon for business.
Volumes of gold products sold surged 150 percent in Hong Kong and Macau during the April 13 weekend compared with the weekend prior, Dennis Lau, director of sales operations at Chow Sang Sang Holdings International Ltd. (116), said in a phone interview yesterday. Customer traffic rose as much as 40 percent on April 16 from a week earlier, with gold bracelets popular with shoppers, said Kent Wong, managing director at Chow Tai Fook.
Tokuriki Honten Co., Japan’s second-largest gold retailer, said purchases doubled April 16 as prices slumped, while Perth Mint Treasurer Nigel Moffatt said in a phone interview “there’s people running through the gate.”
India and China accounted for more than half the world’s gold demand in 2012, according to the London-based World Gold Council. Jewelry was 43 percent of global bullion demand, and bars and coins 29 percent, according to the industry group. More than 60 percent of gold demand last year came from Asian nations including India, China, Thailand, Vietnam and Indonesia.
Holdings Cut
The boost to retail demand comes even as some investors cut holdings. Bullion held in exchange-traded products decreased for a 12th day to 2,364.9 metric tons yesterday, the least since January last year, according to data compiled by Bloomberg. Holdings have slumped 10 percent from a record 2,632.5 tons in December.
Gold’s drop has been excessive as there are still a lot of troubles out there, Dominic Schnider, head of commodities research at UBS AG’s wealth-management unit, said yesterday, fast six cross necklace citing the potential for a weaker dollar and debt concerns.
Still, the metal may drop to the so-called marginal cost of production at $1,150 if investment demand doesn’t return, Schnider said.
Goldman Sachs said April 10 the turn in the gold cycle was quickening and investors should sell the metal. Bank Julius Baer & Co.’s head of research Mark Matthews said “this thing’s going down.” Longer-term investors are going to be very cautious about re-entering this space until they see some stability, Peter Richardson, a Morgan Stanley analyst, said yesterday.
Falling Further?
Not everyone is rushing to buy, according to Haresh Soni, chairman of the All India Gems & Jewellery Trade Federation.
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“There is still a confusion among consumers and traders if prices will fall further,” Soni said from New Delhi yesterday. “So some buying is yet to come.”
Gold has rallied 12 years through 2012, advancing as investors sought a store of value, before dropping this year. Prices dropped below $1,500 an ounce on April 12 for the first time since July 2011.
“Some people have been waiting for an opportunity like this as gold has been trading above $1,500 an ounce in the past two years,” Zhang Bingnan, vice chairman of the China Gold Association, an industry organization representing mining, refining and retailing, said yesterday from Beijing. “Chinese consumers still widely accept gold as a wealth protection.”
