According to the World Gold Council, China’s position as the world’s largest gold market suffered a significant hit in the second quarter of 2024 as demand for gold jewelry plunged 35% year-on-year. The sharp decline was due to the extraordinary rise in global gold prices, coupled with poor consumer sentiment and difficult economic conditions on the mainland. However, the latest quarter could bring some relief for the sector, “as demand for gold jewelry in China typically peaks during this period,” Roland Wang, China Regional CEO of the World Gold Council, Beijing, tells Shilpa Dhamija.

In the first quarter of 2024, demand for gold jewelry in China was 184 tons, about 6% less than the same period last year. In the second quarter, demand fell further to 86 tonnes, a decline of 35% year-on-year. This was China’s weakest second-quarter demand since 2009, as growth in both GDP and disposable income slowed during the quarter. As a result, sales during the five-day Labor Day holiday in May, usually a period of heavy purchasing, were dismal. According to a report by the World Gold Council, in the first half of 2024, the categories that continued to find demand in China were 24K pure hard gold products and historic gold jewelry

Gold as an investment in China

In late September, China’s central bank announced one of the most aggressive stimulus measures since the pandemic to revive the country’s shrinking economy. The plan included a trillion yuan liquidity injection and other measures such as interest rate cuts to help the hard-hit real estate sector. Shortly after the announcement of the stimulus package, Chinese stocks rallied near two-year highs, but failed to maintain the positive momentum and experienced a deep decline a few days later.

According to Wang, there is still healthy demand for gold investment products, “but recent rallies in stocks and positive retail investor sentiment toward risk assets may put some pressure (on gold),” he warns, adding that potential future stimulus will help This would boost consumer confidence and economic growth, which could benefit overall gold demand.

Can China maintain its historic dominance in the gold market?

Wang notes that China has now entered an era of “high-quality” growth rather than “rapid” growth in the gold jewelry market. “This means consumers are now demanding finer design jewelry products and the industry is constantly evolving and innovating to meet higher criteria standards,” he explains.

Furthermore, Wang believes that China still has a long way to go before it can realize its full potential as a market for gold and gold jewelry. “While China’s overall gold demand ranks first in the world, we must be aware that its gold consumption per capita (jewelry + bars + coins + technology demand / population) lags far behind that of other developed markets,” argues Wang, adding, that it matches China’s gold consumption As the economy continues to develop and per capita GDP increases, “the upside potential of China’s gold demand is enormous.”

While the demand for gold jewelry may bring about a change in Chinese consumers’ purchasing habits, the precious metal is still viewed as an investment asset in the country “to store value and hedge against potential risks, especially given the situation in China.” “The gold ETF market is still young and small and is now growing rapidly,” concludes Wang.