By BIMAN MUKHERJI and JOYU WANG
The Wall Street Journal
Dec. 1, 2014
HONG KONG—For years, Wo Shing Goldsmith has warmly ushered in eager buyers from mainland China, with customer traffic peaking at year-end. But shoppers are few and far between this year as Beijing’s anti-corruption drive damps spending.
“There was a sudden drop in gold price last year, which fuelled high demand from China. So we sold a good amount last year,” says Cheung Wai Nam, the 68-year-old co-owner of Wo Shing. “But this year…there is not too much demand.”
The store, opened in 1892 in Yau Ma Tei , part of the shopping district of Kowloon, displays chunky gold jewelry, with an old work bench scattered with tools and an ancient-looking metal vault in the back. The shop, next to a dried-seafood store on a busy street, deals mainly in accessories such as rings, bracelets and golden-pig necklaces.
On a recent afternoon, fewer shoppers than normal could be seen entering neighboring stores.
The world’s biggest gold buyer, China, is losing its appetite amid Beijing’s anti-corruption drive. In Hong Kong, pro-democracy protests have hurt business for some jewelers because of traffic snarls. WSJ’s Joyu Wang reports.
Mr. Cheung says sales are down by about 20% from last year, and that more expensive items are suffering the most. That marks a shift from 2013, when prices “didn’t matter at all, so long as it was made of gold,” he says.
Falling demand in Hong Kong is a serious blow to gold. The city is the trading hub for China, the world’s largest consumer. Buyers typically step up purchases in late November to use as gifts for Lunar New Year celebrations early in the following year. The decline comes as investors elsewhere are also ditching the safe-haven metal for riskier assets such as equities, sending gold plummeting in recent months.
Gifts of solid gold bars, jewelry and even images of ancient Chinese figures are common enough among members of wealthy families and Chinese businessmen looking to sweeten deals. But a crackdown on these golden gifts that began early this year and intensified in early summer—part of a broader effort to eliminate corruption on the mainland—has vaporized demand, analysts say.
“They want to capture not only the tigers, but also flies,” Edmund Moy, chief strategist at U.S-based Fortress Gold Group, says of the crackdown, referring to top officials as well as those lower down. Fortress Gold provides investment products linked to the metal.
A report on third-quarter demand by the World Gold Council, an industry group, said Chinese consumers are increasingly buying 18-carat gold jewelry, rather than rings and necklaces in pure 24-carat gold, a shift that it said may have resulted in part from the effort to fight corruption. Eighteen-carat jewelry is often purchased to wear, while 24-carat products are seen more as a financial investment.
China’s gold demand is expected to be no more than 850-950 tons this year, compared to a record of more than 1,000 tons last year. So far this year, demand is 39% below the level in 2013, and is more in line with demand in 2012, according to the Council.
As demand weakened, the price of gold in China, usually $3-$5 an ounce higher than on the international market, slid to a discount in early November. Buying has picked up slightly since then, leaving the price $1-$2 above international levels.
Premium levels aren’t pointing to an upsurge in demand, traders and analyst say. They argue that the pickup in demand is likely to really strengthen only in January, but that seasonal buying isn’t likely to push gold prices out of their current trough.
Prices of gold hit a four-and-a-half-year low of $1,138.24 an ounce in early November. Monday afternoon in Hong Kong, it was at around $1,151, weighed down by a vote in Switzerland rejecting a proposal that would have barred the central bank from selling gold in the future.
Anita Limbu, a Hong Kong-based manager at Indra Baraha Jewellery, an international jewelry chain, said big swings in prices are cutting into demand for gold. “People are hoping that prices will fall further,” she said.
Kevin Yu, a jeweler in the Mong Kok area, where traffic had been disrupted by Hong Kong’s ongoing pro-democracy protests, said confrontations between police and demonstrators have hurt demand as well.
“Because what we sell are luxury goods, people are less likely to buy them if they are not in a good mood,” he says. “The business is getting better this month, but last month was the worst as our revenues decreased by half.”
Chow Tai Fook Jewellery Group Ltd. , one of the world’s largest jewelers, shut as many as one-third of its stores during the height of the protests in early October. It recently said that October same-store sales in Hong Kong fell 24% compared with a year earlier.
—Kathy Chu contributed to this article.