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A notable slowdown in the expansion of the jewellery retail network magnified the impact on Chinese demand, as stock-building reduced accordingly.

15 Nov 2012

BEIJING (Commodity Online): Mainland China's gold jewellery demand dropped by 5% year-on-year in the third quarter of this year while its bar and coin investment demand declined by 12% year-earlier levels, as per latest “Gold Demand Trends Report” released by World Gold Council.

According to WGC, reflecting the domestic economic scenario, gold demand in China lost further momentum in the third quarter. Nevertheless, consumer demand as a whole was 23% above its 5-year quarterly average, confirming the longer-term strength of the market.

The well-publicised slowing of China’s economy had a negative impact on consumer sentiment. This was particularly noticeable among the middle classes whose purchases of 18-carat gold jewellery were among the worst casualties. In contrast, the decline in demand for 24-carat was relatively modest, allowing pure gold jewellery to gain market share.

A notable slowdown in the expansion of the jewellery retail network magnified the impact on demand, as stock-building reduced accordingly. This also had a negative impact on bar and coin demand, given the important role played by jewellers in selling small gold bars and coins.

The preference among Chinese investors to buy into a clear rising price largely explains the drop in investment demand, as range bound price action during July and much of August curbed demand. Accordingly, investment demand showed signs of recovery as the price began to strengthen in the closing weeks of the quarter, they added.

Notwithstanding the continued slowdown in the pace of China’s economic growth, the fourth quarter is likely to witness a recovery in Chinese demand as the market expects new economic stimulus from the incoming political leadership and as the holiday gifting season approaches.

Although a continued cut back on non-essential spending in the context of economic slowdown could hamper jewellery demand in particular, the longer-term prospects are for demand to improve, underpinned by economic growth rates well above those of the developed world and further significant expansion of the Chinese middle class, WCG concluded.

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