By Gordon G. Chang
“China’s total gold demand remained in free fall” in the second quarter, states the Thomson Reuters Eikon GFMS Gold Survey 2016: Q2 Update & Outlook.
The precipitous drop in China came during the same period global gold demand fell 22.0%, so China is more or less in line with the rest of the world. Nonetheless, the Q2 numbers are revealing: the widely followed survey suggests that consumption, touted as the new growth engine of the world’s second-largest economy, stalled last quarter. Therefore, Beijing’s retail sales figures, which regularly show double-digit growth, are suspiciously robust.
As the GFMS survey reports, jewelry consumption, which has constituted over 60% of China’s total physical gold demand in the past, fell 24.1% year-on-year in Q2. In the previous quarter, it was off 27.3% against the same period in 2015.
The fall in jewelry demand in Q2 took observers by surprise because the corresponding quarter last year was not particularly good for gold. Then, people were fully committed to stocks, which for five-sixths of the period were on a tear upward. So the drop last quarter was off a low 2015 base.
At the moment, small jewelry fabricators are going out of business and bigger ones are shrinking. Many consumers, it appears, are belt-tightening, and migrant workers have been especially hard hit. Migrants, traditional gold buyers, have less to spend on jewelry now as they must devote a higher proportion of wages to meet basic living costs, especially food. Moreover, low-end manufacturing is in trouble, so many migrants have difficulty finding work in industrial centers. China, often called the world’s factory, is dotted with rustbelts of its own.
For the jewelry sector, GFMS says it’s “nuclear winter.”