In 2024, the prices of physical gold and futures have repeatedly hit new highs. On Monday, the spot price rose to a high of $2,730 per ounce, and the prices of various Chinese brand gold jewelry surpassed 800 yuan per gram. Analysts widely believe that the momentum for gold to rise in the future remains strong. However, Chinese consumers have not followed this upward trend, and experts have revealed the truth behind the scenes.
On Monday, during the Asian session, the spot gold price briefly touched a historical high of $2,732.84 per ounce, then fell to around $2,730 in the early European session. On that day, the prices of brand gold jewelry such as Chow Tai Fook, Lukfook, and Laomiao Gold all exceeded 800 yuan per gram.
According to data from the London Stock Exchange Group (LSEG), gold prices have risen by more than 30% this year, marking the largest annual increase since 1979. As of last Friday, gold futures had hit historical highs 34 times during trading hours.
According to the latest report from the World Gold Council, global physically-backed gold ETFs saw net inflows for the fifth consecutive month in September, with total holdings increasing to 3,200 tons, indicating strong capital interest in gold.
Sean Lusk, Co-Director of Commercial Hedging at Walsh Trading, pointed out that despite energy prices falling, the strengthening US dollar, and the stock market rising for six consecutive weeks, they have failed to stop the gold price rally. In theory, a rising US dollar would make dollar-denominated gold more expensive, and a generally rising stock market is not conducive to safe-haven assets like gold.
Max Layton, Director of Commodity Research at Citigroup, is even more optimistic. He predicts that gold prices will reach $3,000 per ounce in the next 6 to 12 months. Amid high economic uncertainty in the US and Europe, demand for gold ETFs and investments as a wealth storage means will be boosted.
Last week, 16 analysts participated in a gold survey conducted by information provider Kitco, with 15 of them (94%) believing that gold prices will further rise in the following week, while 1 person (6%) took a neutral stance on the short-term outlook for gold. No one predicted a price drop for gold.
On the other hand, retail investors have also been actively participating. A Kitco online survey collected a total of 159 votes, with 72% of retail investors (115 people) bullish, 17% (27 people) bearish on gold prices, and the remaining 11% (17 people) expecting gold prices to remain in a sideways consolidation.
Analysts widely believe that the momentum for gold to rise remains strong. Main reasons include international geopolitical tensions, interest rate cuts by central banks worldwide, market uncertainties, and strong demand in the physical market.
In recent days, international geopolitical conflicts have escalated, boosting risk aversion among investors who are flocking to safe-haven assets. Tensions in the Korean Peninsula are rising, with frequent missile tests by North Korea, drones flying over borders, and increasingly grandiose joint military exercises by South Korea and the US. Additionally, there is a risk of further escalation in the conflict in the Middle East.
Alexander Zumpfe, Precious Metals Trader at Heraeus Precious Metals GmbH, said, “With the escalating conflicts, especially after Hezbollah announced an escalation with Israel, investors are flocking to gold as a traditional safe-haven asset.”
Central banks around the world have been cutting interest rates, further boosting demand for gold. On October 12, the European Central Bank cut interest rates by 25 basis points, and it is expected that similar rate cuts may occur in the future at three subsequent meetings.
The Federal Reserve cut rates by 50 basis points in September. According to CME FedWatch, there is a 99.3% probability of a 25-basis-point rate cut by the Fed in November, a 0.7% probability of a 50-basis-point cut, and a 0% probability of keeping the current rates unchanged.
On Monday, the People’s Bank of China lowered the LPR for the new loan market. The 1-year LPR and the 5-year LPR both decreased by 25 basis points compared to the previous month.
The uncertainty of the US election is also one of the factors driving the rise in gold prices.
A recent report from Goldman Sachs indicates that commodities have a good track record as inflation hedging tools. Given the potential policies that may be enacted after the US election, gold could be an ideal investment focus.
The report suggests that gold has become the best commodity for hedging inflation and geopolitical risks. In the event of a trade war, gold could help withstand potential stock market declines.
The increasing US debt is also prompting investors to turn to gold.
Data from the Federal Reserve shows that as of September 30, the fiscal year’s deficit in the US reached $1.8 trillion, with interest payments on the debt totaling $950 billion.
According to Bank of America, concerns are growing about whether demand and investors can absorb more US Treasuries as the US debt supply continues to increase. Therefore, central banks worldwide have a strong incentive to continue diversifying reserves away from US Treasuries and towards gold.
Trevor Yates, an investment analyst at Global X, told MarketWatch that the two main driving forces behind the significant rise in gold prices are “strong physical and financial market demand.”
Global central bank gold purchases hit a record in 2022, reached the second-highest historical level in 2023, and this trend continues in 2024.
However, some analysts are skeptical about further increases in gold prices in the future.
Naeem Aslam, Chief Investment Officer of Zaye Capital Markets in the UK, believes that the growing “fear of missing out” in the gold market may be a sign of a bubble.
He stated that while the bullish momentum remains strong, the steep rise feels emotionally driven, and any hawkish shift by the Fed or profit-taking by gold investors could trigger a correction. The higher the upward momentum without a pullback, the more fragile it becomes. He advises investors to remain cautiously optimistic as overbought conditions could quickly reverse.
Whether in the property market or the stock market, Chinese consumers have always had a mentality of buying high and not buying low. However, in this recent gold surge, Chinese consumers have not followed suit.
According to the latest financial report released by Lao Feng Xiang Group, which operates various platinum gold jewelry and fine jewelry, the overall retail value from July 1 to September 30 decreased by 16% compared to the previous year, with a net reduction of 76 stores.
Both Lao Feng Xiang Group and Chow Tai Fook saw their stock prices halved from their highs, with Lao Feng Xiang’s stock price plummeting by 28% so far this year, while Chow Tai Fook’s stock price has dropped by 36%, evaporating up to 100 billion Hong Kong dollars in market value.
Moreover, in the first half of the year, Chow Sang Sang closed 22 stores, while within three months ending on June 30 this year, Chow Tai Fook closed 95 stores.
Currently, there is a prevailing discussion across various platforms in China about “cutting down on expenses” except for essential purchases. With consumer downgrading, luxury items like gold jewelry are the first to be impacted.
According to data from the National Bureau of Statistics of China, the average per capita disposable income of residents in the first half of 2024 increased by only 5.4%, while the price of gold jewelry surged by 24.28%.
The Lu Zhong Chen Bao mentioned that as gold prices continue to rise, demand on the consumer end is gradually being suppressed, especially in gold jewelry consumption beyond wedding needs, which may lead to more gold shops shutting down or closing.
Aside from the factors driving the rise in gold prices, the wave of store closures may also be related to the inventory of gold shops.
Red Star News cited industry experts as saying, “Many gold brand franchisees may have shorted gold previously, and the higher gold prices go, the more they lose. 20 years ago, when gold prices rose, the large-scale closures of gold shops were mainly due to this.”