Coronavirus hits China's gold jewellery demand as shoppers stay away

A sales assistant displays a 1,000 gram gold bar as an investment for a customer at Caibai Jewelry store, in Beijing, China, on Aug 6, 2019.
A sales assistant displays a 1,000 gram gold bar as an investment for a customer at Caibai Jewelry store, in Beijing, China, on Aug 6, 2019.PHOTO: REUTERS

HONG KONG (BLOOMBERG) - Sales of gold jewellery in China are set to plummet this year as the economic damage from the deadly coronavirus crisis widens.

The death toll from the outbreak has topped 1,100 and shoppers are staying away from public places to avoid infection, while also limiting their spending to basic necessities such as groceries. Jewellery retailers such as Luk Fook Holdings International Ltd. are shortening business hours and managing time off for employees in an effort to prevent the disease from spreading.

"People are not in the mood to shop for jewelry," said Zhang Yongtao, chief executive officer of the China Gold Association. "Stores and shopping malls are closed because of the virus," he said, adding that sales of gold jewellery and bars will drop substantially this year.

Metals Focus, a London-based research firm, sees a 6 per cent drop in sales in China this year, extending an estimated 7 per cent drop in 2019 to a seven-year low. It said the decline could turn out to be "particularly acute" given the Lunar New Year has traditionally been the busiest period.

The crisis comes at a time when physical demand is already suffering in China and India, the world's largest gold consumers, due to rising prices and slower economic growth.

Retailers are already reeling from the long-running, pro-democracy protests in Hong Kong -- and Luk Fook saw a significant drop in store sales and daily retail traffic across mainland China, Hong Kong and Macau during the Lunar New Year, according to deputy chief executive officer Nancy Wong. The company has implemented some staff-cost saving measures and launched Valentine's Day promotions to cushion the impact of the virus.

Bullion is trading near the highest level since 2013 on lower interest rates, and as geopolitical tensions and the virus outbreak sent investors in search of haven assets. If the spread of the disease continues to accelerate or develops into a pandemic, prolonged weakness in the Chinese economy and its impact on global markets should provide a strong boost to gold, Metals Focus said last week.

Spot gold was little changed at US$1,567.29 an ounce on Wednesday, and is up 3.3 per cent this year after posting an 18 per cent surge in 2019.

Hong Kong retailers could see their profit from the city drop in 2020 amid the outbreak, according to Bloomberg Intelligence. Chow Tai Fook Jewellery Group, the world's second-biggest jewellery chain by market value after Tiffany & Co, plans to shut about 15 of its stores in Hong Kong after net income fell following the demonstrations that drove tourists away.


Jewellery makers are also feeling the pain. The Hong Kong Jewelry Manufacturers' Association has flagged that operating efficiency at Chinese factories might only be at about 20 per cent to 30 per cent as some workers might still stay at home, and expressed concerns that orders from retailers on the mainland may drop. Retailers' sales volumes of gold jewellery may plunge 70 per cent in the first quarter, from the same period a year ago, said chairman Benny Do.

"In my 40 years in the jewellery industry, I have never seen the entire Chinese market ground to a halt like now," said Do.