China's Consumers Show Growing Influence in Gold Market

China gold purchased in the second quarter of 2013 has hit new highs. China's gold demand more than doubled from a year earlier to 385.5 metric tons in the second quarter. The figure was 20% higher than the record set in the first quarter. These purchases were powered by Chinese consumers, with female buyers known as damas a major factor.

By CHUIN-WEI YAP
August 12, 2013, 10:49 a.m. ET
The Wall Street Journal

BEIJING—Chinese buyers flocked to jewelry stores in the second quarter to send China's gold purchases to a new high, according to Chinese figures, demonstrating the growing market power of customers such as Zhu Di.

The 45-year-old Ms. Zhu, who also goes by Judy, saw gold's 23% drop in U.S. markets during the April-June quarter and decided it was a time to buy. "I've always paid attention to gold prices," she said as she shopped recently at a jewelry store off Beijing's eastern Dongzhimen hub. "I pay attention not only to Chinese gold prices but also U.S. gold prices."

China's gold demand more than doubled from a year earlier to 385.5 metric tons in the second quarter, according to calculations by The Wall Street Journal based on figures released on Monday by the state-backed China Gold Association. The figure was 20% higher than the record set in the first quarter.

Analysts say the purchases were powered by Chinese consumers, with female buyers known as damas a major factor. Dama, which means something akin to "big mama" in Chinese, conjures in China an image of a middle-aged woman who keeps a tight grip on the family purse and an eagle eye on gold prices in jewelry shops. Analysts say such consumers have helped stabilize prices at a time when investors globally have shed gold as the price of bullion has fallen.

"Without the strong Chinese physical demand, I think gold prices would likely be trading at a much lower price now," said Phillip Futures analyst Joyce Liu.

Albert Cheng, managing director for the Far East for the World Gold Council, also cited Chinese retail as helping to set a floor on gold prices during an 8% plunge in April. "Chinese retail consumers have a very strong affinity toward gold," he said in a recent email. The council is set to report its own second-quarter figures on Thursday, which don't always match official Chinese figures but generally show similar trends.

In China, lower-end gold retailers woo retail consumers with low prices and a sales pitch of buying gold as a way to store value. That can be an attractive argument in a country where the stock market is still well below its highs of five years ago and the government limits other investment options.

Nobody keeps figures on damas themselves, but they are the most visible segment of the Chinese retail gold-buying public.

"Older consumers—women—definitely took up a larger proportion of consumers in the gold rush," said Jiao Guangyi, deputy general manager of the All Love All Life gold store in Beijing. "They hadn't seen such prices in a long time so it was a big draw for jewelry and investment gold buyers." Mr. Jiao said dama-driven sales at his store more than doubled in mid-April from a typical month.

One of them was Xie Xiaoying, who was shopping for a gift to commemorate the her brother's infant's first month, a traditional Chinese rite of passage. But she held back on a purchase, calculating that gold would go still lower. "If the price is 220 or 250 yuan [US$36 to US$41 a gram], more gold buyers would come out," she said.

The market, which is intensely watched in China, has also drawn scrutiny. China's top economic-planning agency said last month it was investigating whether retail gold prices in the city of Shanghai were manipulated by jewelry shops to keep them in a narrow range. On Monday, officials fined five Chinese firms a combined 10.6 million yuan ($1.7 million).

China's rising purchases could help it win sought-after price-setting power in the gold markets, an initiative it has pursued by widening trading hours and giving commercial banks greater ability to trade. China is the world's largest gold producer but local prices usually take their cue from U.S. and European markets. Following global market prices, spot-gold prices in China have fallen to their lowest levels in three years, shedding 20% from the start of the year to reach 266 yuan a gram Monday, according to the Shanghai Gold Exchange.

That price equates to about $1,232 an ounce. Mid-morning Monday in New York, gold futures were trading at $1,340 an ounce, up $27.80.

Damas generally frequent budget markets, but higher-end retailers have also seen an impact. Analysts say they likely played a role in boosting Hong Kong's Chow Tai Fook Jewellery Group Ltd.'s 1929.HK +0.81% first-quarter earnings. The company announced last month a 48% rise in first-quarter same-store sales, with sales of gold products jumping 78%

"We are seeing a lot more of them," said Li Ying, a deputy store manager at a branch of Chow Tai Fook in eastern Beijing.

It's difficult to speak for all of China's damas. But those interviewed suggested gold's worst is yet to come. "When it gets to 230 yuan, I will start to look," said Ouyang Liying, a 50-year-old electronics saleswoman in Shanghai. "That's what I would call a good price."

At Beijing's Caishikou Department Store, the capital's premier outlet where damas thronged for golden bling on a rainy weekday, the sales force has its finger firmly on the pulse of damas' tastes. "We do notice that the damas prefer thicker gold necklaces, so we make recommendations according to their preference," said a marketing department supervisor.

Some are holding out for a better bargain. Ms. Zhu, of Beijing, who sports a small gold Buddha on her gold necklace, believes gold will fall by an additional 30 to 50 yuan "but not much more."

"Then I'll come back and buy," she said.

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