The evil of not allowing folks to own monetary gold ...
tdctrade.com
23 May 2002
A goldmine of sales in Wuhan
Customers benefit from stable pricing.
Gold prices may have been rising on the international market, but gold jewellery has been stabilized at around Rmb90 (HK$84.9) in Wuhan since December 2001. That compares with the price of the metal itself, which moved up to Rmb80.3 (HK$75.7) from Rmb71 (HK$66.9) over the same period, after the People's Bank of China adjusted prices.
Wuhan New World Jewelry Co, the largest in Hubei province, has been selling gold jewellery at the same level for months, with a result that the price gap between physical gold and gold jewellery is now less than Rmb10 (HK$9.4), the narrowest in years.
China is the world's third largest gold consumer and fourth largest gold producer. With a population of 1.3 billion, each person can only buy 0.13 grammes of gold even if China's entire annual production of 170 tonnes were made available to consumers.
Gold ownership per capita currently stands at a mere 0.2 grammes, but demand is huge. The fact is that the supply-demand pattern results in China's total gold supply falling far short of people's investment needs.
Tempting offer of gold jewellery.
In the past, gold trading was controlled by the central bank, and demand for gold was inevitably pent up. Gold investors could only buy gold jewellery because there was no alternative. The narrowing price gap between gold and gold jewellery has therefore been very tempting, as mainland people habitually buy and stack away gold jewellery as a hedge against inflation.
According to industry analysts, the reason why the price of gold jewellery in Wuhan has not risen with the price of physical gold in the international and domestic markets, is because local jewellers stocked up before the Spring Festival, well before the price went up. To stay competitive, they have had to keep prices low.
Besides, it is the jewellery manufacturers who bear the main brunt of rising gold prices. Retailers, although reducing margins, can partially withstand the impact because they can sell off stocks.
Wuhan under pressure to follow other cities' prices
Golden dilemma for Wuhan.
With the upward adjustment of gold jewellery's ex-factory price, retailers in Beijing and some southern cities have also raised their prices accordingly. The price has risen to over Rmb100 (HK$94.3) per gramme in some cities. Retailers in Wuhan are therefore under tremendous pressure to follow suit. The Wuhan Gold and Jewellery Association is actually now looking at the issue.
Meng Hanhua, chairman of the Wuhan Gold and Jewellery Association, notes that gold prices in China have considerable room for increasing, as they are currently close to the cost of mined gold. Also, compared with the international gold price of US$300 (HK$2,340) per ounce, the price of gold in China is still low on average.
Horses for courses: demand strong for 2002.
Furthermore, with the price of gold jewellery at Rmb90 (HK$84.9) per gramme in the domestic retail market, the products are loss making because, in reality, they should also include 17% VAT, 5% consumption tax and Rmb3 to Rmb5 (HK$2.8 to HK$4.7) as a processing fee. Currently, dealers are waiving the fees for customers.
Meanwhile, the Lunar New Year celebrations make a big difference to sales volumes, and Wuhan traders have not exactly been hurting in their overall strategy. With 2002 being the Year of the Horse, the Wuhan New World Jewelry Co was selling more than 100 gold horses a day before and after the Spring Festival.
from special correspondent Yan Hua, Wuhan |
