A year after a monumental double-digit freefall in prices over two days in 2013, the Chinese are no longer so crazy about gold. A 28 percent slide in the yellow metal last year has also left many companies in the gold trade struggling to stay in business.
After an initial gold-buying binge last year driven by a wave of bargain hunting, the prolonged softness in gold prices has led to a change in the mindset of mainland consumers, more so that of speculators. Scenes of people beating a path to snap up whatever is available in gold stores are now only a memory. Many are taking a backseat to wait for a better time before topping up, a situation gold merchants don’t want to see.
Along the gold value chain, companies are suffering. Some retailers are still digesting the inventory bought at much higher costs before the slump, others had to take huge write-downs. Unfortunately, as consumers turn cautious, rivalry gets worse. ‘Sale’ signs are on almost round the year, aggravated by newcomers that joined the business last year to harvest the gold rush, a CCTV report noted.
Chinese consumers bought 1176 tons of gold last year, 41 percent more than in the previous year, according to the China Gold Association, with the growth largely driven by jewelry items and gold bars for investment purpose. In the first quarter this year, the market shrank 17 percent to 250 tons.
Processing factories were hit by a decline in fee income as the market slowed. Less productive mines were forced to suspend operations as costs exceeded the value of gold produced.
It takes a ton of gold ore to yield a few grams of gold. A mine owner told CCTV that the costs of mining a ton of gold ore is about 300 yuan; if the gold content is low, there will be little profit, if at all.
Investors who bought into gold mining shares would have lost a bigger fortune compared with buying the metal itself. Zijin Mining (02899.HK) almost halved in value last year as earnings tumbled. Smaller peer Zhaojin Mining (01818.HK) was down about two thirds during the period. Both showed moderate bounce this year, but with gold merchants still searching for ways out of the current downturn, the outlook is anything but shiny.
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