Why a weak yuan is spurring a retail gold rush in China

With the yuan weak, housing in the doldrums and stocks as insecure as ever, China’s working and middle class are turning to one investment option that is regaining some shine: gold.

For Chinese consumers with limited access to overseas investment products, the precious metal is one of the few ways they can try to counter the shrinking value of their other assets.

The yuan is only expected to weaken, but most Chinese individuals cannot buy US dollars or US dollar-denominated products to hedge against the Chinese currency’s fall.

Against that backdrop, the easiest option for the general public is to buy gold bars or gold jewellery at retail outlets, even if it means paying extra in processing fees.

The interest has sent spot gold prices in China to 13-year highs and widened the spread with the international price to the most in a decade.

As of Monday, the spot price of gold was over 473 yuan (US$64.71) per gram, resulting in a gap of about 4.7 per cent between the domestic and international gold price in China.

In mid-September, the retail price for gold from main brands, such as Chow Tai Fook, Chow Sang Sang and China Gold, had risen to 600 yuan per gram, but buyers were still not deterred.

On Chinese microblogging site Weibo, one post on the rising price of gold jewellery was read more than 48 million times within a day of publication.

Fred Qiu, a business-development manager for a jewellery brand in eastern China, said there were more customers for the precious metal at his company’s stores, but different products appealed to different generations.

“Little one-gram beans of gold are particularly attractive to Gen Z customers, while young couples and middle-class women prefer gold bars – the 10-gram and 50-gram bars are especially popular,” Qiu said.

At a shopping centre in the southern city of Guangzhou, a sales manager at a jewellery shop said business was on the up, with sales rising by 20 to 30 per cent in the past two months, year on year.

Advising a customer on the virtues of gold, she said some customers set aside money in each pay cheque.

“In a year, they would have a dozen or so gold beans. Each gold bean weighs a gram, and it was about 500 yuan (US$68.57) early this year. Now it has risen to about 600 yuan. This is more valuable and reliable than buying any stock,” the sales manager said.

Guangzhou resident Annie Fang is one of the frustrated members of China’s middle class watching the value of her portfolio fall, and she understands why the metal seems attractive.

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“Among the uncertainties, both economically and politically, gold is becoming more credible than other domestic assets, whether it’s property or stock,” Fang said. “I can understand why there are still so many people buying it.”

She said that, for many people, the feeling of security from being able to invest abroad or buy foreign currency and move their wealth abroad had vanished, giving them little room to manoeuvre to safeguard their wealth.

In the past year or so, China’s leading banks have also introduced restrictions on precious-metal-trading services for retail clients, including limits on the opening of new accounts, increases in guaranteed deposit ratios, and the suspension of purchase transactions.

While gold was not as good an investment as US dollars, she said people should consider buying it as a gift for friends.