June 11th, 6月11日 Financial Association news (Reporter Lu Tingting) since the fourth quarter of last year, gold prices have been soaring, however the prices recently experienced a rare plunge. Along with holiday promotions, Lao Feng Xiang (600612.SH), CHJ Industry Co. (002345.SZ), LUKFOOK Jewelry, and other gold brands suffered declines in retail prices of 24K gold jewelry, but still remained relatively high. Consumers remained hesitant during the Dragon Boat Festival. On the day of the Dragon Boat Festival, a sales representative from a brand-name gold store told reporters from Financial Association, “There is not much traffic, and consumers will not directly make purchases unless they must.”

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Recently, gold prices have experienced a severe setback, which zoomed up the hot search list. On June 7th, local time, spot gold in London fell below the $2,290 mark at one point, ultimately closing down 3.45%, reporting at $2,293.51 per ounce. COMEX gold futures main contract fell 3.34%, with the largest closing decline since April 2022.

“The latest nonfarm payroll data released by the United States far exceeded April data and public expectations. In the short term, this means that the U.S. economy is resilient, and the Federal Reserve has more reasons to maintain high interest rates, therefore stimulating the upward trend of the U.S. dollar index. This also accelerated profit-taking selling pressure among the gold bulls, leading to a sharp drop in gold prices throughout the day,” said analyst Song Yunming of Beijing Asuma International Economic Consulting Co., Ltd. to reporters from Financial Association.

The international gold price decline has also spread to the gold retail market, and prices of 24K gold jewelry from brand-name companies have experienced general declines. Jinse Blue Gold Price Query website shows that on June 7th, some brands such as CHJ Industry Co., LUKFOOK Jewelry, Chow Tai Seng Jewellery(002867.SZ) and others had gold jewelry prices as high as 731 yuan/gram, which fell to varying degrees on the first day of the Dragon Boat Festival holiday (June 8th). Among them, Lao Feng Xiang and Lao Miao Huangjin fell to 706 yuan/gram and 703 yuan/gram respectively, a decrease of 23 yuan and 26 yuan from June 7th.

Currently, the prices of most brand-name 24K gold jewelry are still at relatively high levels above 700 yuan/gram (around 620 yuan/gram at the beginning of the year). To boost sales, major gold stores launched discount activities to provide consumers with benefits during the Dragon Boat Festival. Sales channels reported that LUKFOOK Jewelry is offering 40 yuan off per gram for gold purchases, and based on the June 10th price of 708 yuan/gram for 24K gold jewelry, the price after the discount is 668 yuan/gram. The promotion is valid until June 16th. Chow Tai Fook [(01929.HK)] offers a discount of 20 yuan per gram for 20g of 24K gold jewelry or less. If the single jewelry item is over 20g, buyers can get a discount of 30 yuan per gram on top of the gold price (excluding the processing fee).

However, sales performance may be difficult to achieve, as during the Dragon Boat Festival period, reporters from Financial Association saw few customers in multiple gold stores. Industry insiders told reporters from Financial Association that the overall gold sales during the Dragon Boat Festival are not as good as in the previous period. Investment-type gold bar sales have decreased, while consumer-type jewelry sales have decreased even more, making the retail market quite weak overall.

Gold brands are feeling a headache.

The impact of the recent “roller coaster” ride and the relatively high price range of gold prices should not be overlooked.

Looking back, according to Wind data, spot gold prices in London had hit historical highs of $2,450.1/ounce on May 20th, and then experienced consecutive declines for several trading days, with a single-day decrease of over 2% on May 23rd. In the ten trading days from May 24th to June 6th, gold prices rose in seven trading days and fell in three trading days, ultimately closing at $2,375/ounce on June 6th.

Taking a longer view, although the recent spot gold prices have fallen somewhat, the price increase from the beginning of the year to June 7th still exceeded 11%. The domestic gold prices also continue to rise, with the Shanghai Gold Exchange AU9999 hitting a year-high of 578 yuan/gram, rising by 21.68% from the low point of 475 yuan/gram at the beginning of the year.

截图源自上海黄金交易所官网

According to Song Yunming, the previous increase in gold prices had been too large and was relatively short-lived. As a result, retailers adjusted their prices at a relatively high frequency, creating a situation where many potential consumers did not actually make purchases. The current sharp adjustment phase of gold prices again places greater risk on investors and reduces purchasing desires. However, the current higher material costs are creating greater pressure on the short-term operations of retailers.

Recently, there have been reports that Chow Tai Fook has closed its factory in Shenzhen. According to a statement provided by the company to reporters from Cailian Press, the group has decided to adjust and re-plan some departments of its Shenzhen plant and relocate some production departments to its Shunde plant in Guangdong in order to further adjust the allocation of enterprise resources and improve operational efficiency. The business involved in the adjustment accounts for a relatively small proportion of the group's main business in Shenzhen, and there is no shutdown or stoppage of production.

Regarding this matter, Song Yunming believes that, on the one hand, it is a subjective adjustment made by Chow Tai Fook to reduce operating costs in response to the current situation of low consumption and passive increase in material costs; on the other hand, it is also a common adjustment measure for many enterprises to move production lines out of first-tier cities and retain only administrative or R&D departments.

Chow Tai Fook Group is expected to release its FY2024 financial report as of March 31, 2024 in mid-June. According to recent research reports by Morgan Stanley, due to the sharp rise in gold price in the second half of FY2024, especially in March, it is expected that Chow Tai Fook's gold loan will incur a huge unrealized loss in the second half of that fiscal year, and the bank has lowered Chow Tai Fook's target price from HKD 13.5 to HKD 12.

Behind the rapid rise and fall of gold prices, the market environment is becoming increasingly challenging, and it is not just Chow Tai Fook that is feeling the headache.

At the recent shareholders' meeting, Chow Sang Sang (00116.HK) Chairman and CEO Zhou Yongcheng said that due to the sharp rise in gold prices this year, which has constrained consumer willingness to buy, the company's sales performance is worse than expected, making it difficult to estimate the trend of gold prices. Therefore, it will prudently manage its gold buying and selling to reduce risk.