On July 18, Caixin reporters (Lu Tingting, Wang Biwei) reported that the price of gold is high, but the retail market continues to be sluggish.

Caixin reporters visited the Shenzhen Shuibei Gold Trading Market and learned that although the market is crowded, many merchants revealed that their customers used to be mainly wholesalers, relying on "volume," while now the market is mainly composed of individual customers and retail business, with many visitors but few buyers.

"The gold price is too high. The raw material market is oversupplied. Recycled gold cannot be sold after being refined into raw materials," a Shuibei gold raw material salesperson told a Caixin reporter.

A staff member of the Securities Department of Chow Tai Seng (002867.SZ), who also spoke to Caixin reporters as an investor, stated that "In March and April, there was also some suppression of end-sales due to the continuous rise in gold prices."

Under this circumstance, the gold market has a sense of "double-edged sword." Looking ahead, many interviewees believe that the gold price may continue to rise, and the industry chain's "double-edged sword" may continue.

Gold brand sales are sluggish.

On workdays, the retail market on the negative first floor of Shuibei Jingzuo and Shuibeiyihao and other large shopping malls are crowded, but the popularity did not decline because of the continuous increase in gold prices. However, high popularity does not seem to bring higher profits.

(Shuibei market is crowded. Caixin reporters took pictures)

"Although there are many people, many are tourists who come and wander around. Shuibei has now become a scenic spot," a stall owner told Caixin reporters helplessly. "There are more visitors than buyers."

Unlike the attitude towards individual customers during the peak season, most of the Shuibei booth owners who were asked for quotations by Caixin reporters were very enthusiastic. When the reporter said he wanted to buy a style that was not placed on the counter, many owners said that he could go to the exhibition hall upstairs for wholesale customers to choose and said the price can be "rounded down."

Caixin reporters followed one of the shopkeepers who sold K gold pearl jewelry to its showroom on the first floor of Shuibeiyihao and found that there were no other individual customers or wholesalers in the showroom. The shopkeeper actively offered a "wholesale price" of 1.2 times the tag price, saying, "Now there are not many customers, and I will give you the same price as the wholesale customers."

A booth owner told Caixin reporters that although there are many people in the retail market on the negative first floor of Shuibei, many retail counters in Shuibei are only a bit over a meter, and there are one or two salespersons for each counter, of which a large part are counter personnel. Individual visitors come in groups of three or five and stand in front of the counter. Unfamiliar people think that there are a lot of people and popularity. "Come and take a look at our showroom upstairs. There are really no wholesale customers."

"Although it is the off-season now, the data of our raw materials that went on the market are really poor compared to the same period last year. The raw material suppliers all have raw materials on hand, but there is no style." A Shuibei upstream gold raw material merchant told Caixin reporters that since March when the gold price soared to the present, business has shrunk sharply. Since Shuibei's gold jewelry quotations are the raw material price + processing fee, the rising raw material price and unchanged processing fee have caused the product price to rise sharply and customers have become scarce.

"Shuibei wholesale business is also difficult to do now, and it is undergoing a transformation towards retail". The above-mentioned person further stated that with the increasing transparency of information, local gold shops have no advantage in price comparison with Shuibei. Many small and medium-sized gold and jewelry stores are facing business difficulties, and wholesale customers are decreasing.

The continuously rising gold price occupies the dominant position in gold investment, and the recognition of consumers' premium for brand merchants relatively decreases. On July 17, Caixin reporters visited Maoye Department Store in the core business district of Nanshan District, Shenzhen, and found that there were almost no customers in the several brand gold shops in the mall around 8 pm.

(First floor of Maoye Department Store in Nanshan District, Shenzhen. Caixin reporters took pictures)

On July 17th, the gold price in the Shuibei market was RMB 572/gram, and the foot gold jewelry of brands such as Chow Tai Fook (01929.HK), Luk Fook Jewelry, Guangdong CHJ Industry Co., Ltd. (002345.SZ), Zhou Dasheng had quoted RMB 753/gram. The local retail price of Zhou Shengsheng foot gold jewelry broke through RMB 754/gram, reaching a record high. Jinlan Gold Price Query Network data showed that the gold prices of most brands last year were around RMB 586/gram during the same period.

Under this circumstance, many brands have begun to offer discounts and "quantity for price reduction." The above-mentioned staff member of the Securities Department of Chow Tai Seng said, "From the second quarter, some consumers turned to a wait-and-see attitude due to the continuous rise in gold prices. This is a common situation in the industry. Franchisees and gold shops are also trying to stimulate end-sales, or to dispel consumers' concerns about prices. They generally choose to give discounts, but the specific discount range is adjusted according to different regional or commercial characteristics."

It is understood that currently brand merchants' main promotion methods are discounted pricing for fixed price products and reduced prices based on weight for calculable products. Discounts are mostly between 20% and 10%, while reduced prices range from 20 to 120 yuan. Although they have shown sincerity, the price difference compared to Shuibei is still large. "If they were brands with their own factories like Chow Tai Fook and Chow Sang Sang (00116.HK), it would be okay. But brands like Chow Tai Seng and Chow Tai Fook originally derived from Shuibei and currently have some products that resemble Shuibei's retail styles, so they are more affected by Shuibei's retail." A Shuibei "purchasing agent" told a Cailian Press reporter.

It is worth noting that the Zhoulufu in the above Nanshan Maoye Department Store has officially closed its doors. When a Cailian Press reporter confirmed the situation with a Nanshan Maoye staff member, the person said that the contract had expired and the store had been closed for a few months, "maybe because business was not good."

(Zhoulufu closed, no new jewelers have moved in. Cailian Press)

Since the beginning of this year, the negative news of gold store closures has continued. In June, some media reported that five Zhou Dasheng gold shops in Changyuan, Xinxiang, Henan Province closed at the same time half a month ago, and many local residents had stored gold and money in these shops, involving an estimated amount of several million yuan. In March, some media reported that a China Gold (600916.SH) store in Beijing closed down and 50 million customer gold bars were taken away.

High gold prices may continue to pressure retailers

Since the end of June, international gold prices have risen for three consecutive weeks, once again reaching a new high. Wind data shows that on July 17, London spot gold reached 2483.76 US dollars/ounce during trading, while COMEX gold futures broke through 2488.4 US dollars/ounce, both hitting historic highs.

Wu Zewei, a researcher at the Xingtu Financial Research Institute, told a Cailian News reporter that the Fed's speech had softened and the market's expectation of a rate cut in September continued to heat up. The decrease in nominal interest rates has become the main factor driving down real interest rates and boosting gold prices. In addition, as Trump and Biden vigorously compete for the presidency, rising geopolitical uncertainty has increased demand for gold allocation.

A long-term view shows that gold prices have skyrocketed. As of July 17, London gold has risen by as much as 20% this year; Shang Gold rose to 581 yuan/gram on the morning of the 17th, an increase of about 100 yuan/gram from around 480 yuan/gram at the beginning of the year.

The continuously rising gold prices have resulted in a polarization of enterprises in the gold industry chain.

On the one hand, upstream mining companies are generally expected to increase their performance in the first half of the year. Chifeng Jilong Gold Mining (600988.SH) expects net profit in the first half to increase by 124.39%-137.21% year on year, SD Gold (600547.SH), Hunan Gold (002155.SZ) and Zijin Mining (2899 HK) expect their net profit to increase by more than 40% year on year; Western Region Gold (601069.SH) is expected to turn its net profit from loss to profit in the first half of the year. In terms of quarter-on-quarter performance, Chifeng Jilong Gold Mining Q2 net profit is expected to increase by 148%-168%, Hunan Gold Q2 net profit is expected to increase by 41.36%-75.93% quarter on quarter, and Zijin Mining's Q2 net profit is expected to increase by 32%-47% quarter on quarter.

It is understood that because the output of gold is sold at the real-time price of the Shanghai Gold Exchange, high gold prices have a positive impact on the performance of gold mining companies. The above-mentioned listed companies also frequently mention “gold output and sales prices rose compared to the same period last year” and “product prices rose” in their performance attribution descriptions.

On the other hand, the revenue of downstream gold brand retailers is worrying. Chow Tai Fook's unaudited main business data for April 1 to May 31, 2024 shows that its retail value decreased by 20.2% compared to the same period last year, with mainland retail value, which accounts for nearly 90% of the group's retail value, down by 18.8% year on year. In addition, same-store sales and same-store sales volume have both seen significant declines.

The profits of branded gold stores are not actually high. For example, China Gold's revenue in 2023 was 56.364 billion yuan, with a profit of less than 1 billion yuan; Lao Feng Xiang (600612.SH) had revenue of 71.436 billion yuan, with a profit of only 2.214 billion yuan; Zhou Dasheng's revenue in 2023 tripled that of 2019, but its profit only increased from 0.991 billion yuan to 1.316 billion yuan. Guangdong Chj Industry (002345.SZ) has seen a declining trend in gross margin for traditional gold jewelry from 10.13% to 9.23% to 8.73% from 2021 to 2023.

"The continued high gold price may put some pressure on the operation of gold retail brands." Song Yunming, an analyst with Beijing Ashaming International Economic Consulting Co., Ltd., told a Cailian Press reporter. For gold retail, jewelry is still the main product. Without considering investment value preservation, sales and prices often exhibit an inverse correlation, and the historical increase in gold prices also makes it difficult for most ordinary people to accept.

Wu Zewei believes that as gold prices rise, many consumers turn to buying investment gold bars, and gold jewelry is lukewarm, so banks and other competitors may be more popular, which will affect the profitability of gold stores.

Looking ahead, will the upward trend in gold prices continue?

According to Song Yunming, the cornerstone of the recent bull market in gold, the "instability of the world situation," has not changed, and the possibility of international gold prices breaking through $2,500/ounce is high.

Song Yunming further stated that, technically, gold has undergone a wide-ranging adjustment for more than two months at a high level, maintaining support above $2,280/ounce, eroding bears' confidence. As global demand for gold ETFs recovers, institutional investors' interest in gold bulls supports the upward trend in gold prices.

The sales performance of branded retailers may be hard to be optimistic, and the potential impact should not be underestimated. Wu Zewei said that the consolidation of gold prices at a high level will greatly suppress consumers' purchasing willingness, causing poor retail sales. Moreover, as a high-circulating commodity, if the gold commodity is seriously overstocked, it will put significant pressure on the cash flow of gold retail brands.