Gold Prices Surge to Historic Highs Amid Strong Investment Demand and Fed Rate Cuts
Gold prices have hit historic highs this year, driven by robust demand for the precious metal as investors seek safer assets amidst global economic uncertainty. The surge comes as geopolitical tensions, US Federal Reserve rate cuts, and increased gold purchases by central banks fuel demand.
On September 25, spot gold prices reached a record $2,670 per ounce, following a steady upward trend in the second and third quarters of the year. In China, gold prices also surged, with the Shanghai Gold Exchange’s Au 99.99 contracts closing at 595.66 yuan ($85) per gram. Retail prices for gold jewelry in the country have similarly risen, with brands like Chow Tai Fook and Lao Feng Xiang pricing their products above 750 yuan per gram.
The strong performance in gold is attributed to its appeal as a secure investment in a volatile economic environment. While gold bars and coins have attracted significant interest, gold jewelry demand has softened. Data from the World Gold Council (WGC) shows a stark contrast between the two markets: investment in gold bars and coins surged by 62% in the second quarter compared to last year, while jewelry consumption in China hit a low not seen since 2009.
Wang Lixin, regional CEO of the WGC (China), noted that the rise in investment demand is driven by the belief that gold serves as a hedge against economic instability. Additionally, the initiation of the Fed's rate cut cycle and the resulting decline in interest rates have further bolstered gold’s appeal. Experts expect gold demand to remain strong, with prices potentially continuing to rise as further rate cuts are anticipated in the coming years.
Meanwhile, upstream mining companies are benefitting from elevated gold prices, reporting significant profit growth. A study showed that 10 of China's A-share listed gold mining companies saw a collective net profit of 19 billion yuan in the first half of the year, a 48% increase compared to the same period last year. However, downstream gold jewelry retailers are struggling, with companies like Chow Tai Seng seeing an 18.71% drop in net profit.
Retailers are responding by introducing promotions, such as price reductions and free trade-ins, to attract customers who are cautious about buying gold at high prices. Despite these challenges, Wang suggests that retailers innovate by offering cost-effective products such as Hard Pure Gold, a new type of 999 gold that allows for lightweight and durable designs.
