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Experts say Chinese New Year gold purchases are driven by unique factors unlike years past

Gold traders and investors are closely watching consumer purchases in China as the world’s largest precious metals market gears up for the Chinese New Year (CNY) celebrations. And while it’s traditional to buy gold in the runup to the annual festival, there are a number of unique factors that could see gold sales for this year’s Lunar New Year holiday surprise.

Chinese gold purchases were strong last year even as the price of the precious metal hit new all-time highs on the local market. The New Year will fall on Saturday, Feb. 10 this year, beginning the year of the Wood Dragon, with Chinese workers enjoying a holiday week off from Feb. 10-17.

According to China-based consultants at Metals Focus, an independent precious metals firm, this New Year is a complex one to figure out in terms of gold sales, as there are several unusual elements in play.

“Year of the Dragon should normally give jewellery demand a big boost, as it is a very auspicious time,” they told Kitco News. “Moreover, the appetite for gold jewellery at the consumer level in China in general has been quite decent, helped by favourable tastes/fashion, consumers interest in quasi-investment jewellery, younger consumers liking gold,” and other supportive factors.

Having said that, Metals Focus consultants are also seeing “sizeable headwinds” for consumer gold purchases in the country, including China’s “challenging economic conditions,” the gold price being “historically high,” and jewellery’s appeal facing competition from travel, experiences, dining out and other activities.

“Remember, this is only the second CNY post-pandemic, and some people wouldn’t have been able to do as much as they would have liked to do last year, as flights were still expensive, it was too soon after lock-downs finished, etc,” they said. “We think we can expect decent enough sales but probably no fireworks, at least in weight terms.”

“In value terms, we suspect sales will be quite impressive.”

They added that because last year’s Chinese New Year sales were quite strong, “when we take into account these headwinds, we could well see a y/y decline overall in festive period retail sales.”

COVID aftereffects could boost CNY sales beyond forecasts

Rohit Savant is Vice President of Research at the CPM Group, one of the world’s leading precious metals and commodities research firms. Savant told Kitco News that their people in China are telling him that the lingering effects of COVID on previous CNY seasons could actually serve to boost this year’s numbers.

“What we’ve been hearing from our consultants there is that demand has been pretty strong,” Savant said. “I think a lot of that has to do with pent-up demand. What you had was an exit from the ‘zero-COVID policy’ back in December 2022, and then you had an upsurge in COVID cases in early 2023, so their Lunar New Year last year was mired in COVID.”

“This is actually the first time that COVID is not the centerpiece of what’s going on over there right now, so I think that’s really helping in terms of pushing demand up.”

Savant said that they’ve seen strong demand in China for a large part of 2023, and it has continued into the early part of this year. “We think that’s really being reflected in the U.S. dollar price of gold, which has held up pretty well despite some readjustments in the market with regards to when the Fed might start cutting rates,” he said. “We think one of the reasons why gold has been able to hold up that well is this demand in China.”

“You’re also seeing the premium between the SGE [Shanghai Gold Exchange] price and the LBMA [London Bullion Market Association] price is still pretty high,” he noted. “Again, that’s something that shows that there is robust demand within China.”

Savant said the sharp downturn in Chinese equity markets and the real estate sector will also contribute to gold’s investment appeal.

“In countries like India and China, the gold that they buy even a minute amount in the form of jewelry, it’s very high-carat gold,” he said. “One of the main purposes for buying that high-carat gold is because it’s something of an alternative investment. And with the various problems in the Chinese economy at the moment, and generally relatively sluggish growth, all of those factors are also definitely influencing this demand for gold.”

He said the Chinese New Year provides an opportunity to double up on gold purchases that investment-conscious citizens would already be doing. “You buy it with the purpose of celebrating a festival, but you’re also buying it as a safe haven asset,” he said. “You see this sort of thing happening in China during the Lunar New Year, and you see a similar thing happening in India during Diwali. So it doubles up as both a celebration as well as an investment. You do see a lot of that happening.”

Another factor that could boost demand is the alignment of the lunar and solar calendars, which this year sees Valentine’s Day fall right in the middle of the Chinese New Year holiday week, though Savant cautioned that the impact of this would likely be very limited geographically and would in any case be very hard to isolate within the broader market patterns.

“A lot of this demand also comes from smaller cities and the rural areas, so I don’t know how much of a role Valentine’s Day itself would play,” he said. “It will be very difficult to attribute demand to that particular celebration. Possibly in the bigger cities, there might be some overlap in demand, but I wouldn’t be able to say with confidence that’s contributing to this strength in demand.”

Savant also pointed out another unusual effect in play this year: The SGE price is actually reflecting the ongoing selling and day-to-day demand leading up to the holiday itself.

“Typically, the buying by fabricators tends to stop maybe two, two and a half weeks before the actual celebration,” he said. “But this year, because there’s been such robust demand, these fabricators are keeping their buying going for a much longer period of time.”

“In that sense, the premium that you’re seeing on the SGE is reflective of that demand this year, as opposed to in typical years when you probably would not see that demand coming as close to actual Lunar New Year as you’re seeing this year.”

Source: Ernest Hoffman Kitco