As the Spring Festival approaches, sales of gold jewelry soar, with some stores reporting a 165% increase in sales. Zodiac gold and "Guochao" style are particularly popular. Which pieces of information are worth noting?

Understanding the Price Difference Between Gold Jewelry and Pure Gold

It’s essential to understand the difference in price between gold jewelry and gold.

Let’s take a look at the rise in gold prices over the past decade:

• 2012: 354 CNY/gram
• 2013: 282 CNY/gram
• 2014: 251 CNY/gram
• 2015: 235 CNY/gram
• 2016: 267 CNY/gram
• 2017: 275 CNY/gram
• 2018: 270 CNY/gram
• 2019: 312 CNY/gram
• 2020: 386 CNY/gram
• 2021: 374 CNY/gram
• 2022: 416 CNY/gram.

Over ten years, the price of gold has only increased by 60 CNY per gram.

Frankly, this increase is similar to bank interest rates, so gold has always been seen as a stable, value-preserving investment, suitable for long-term holding, but the truth is, the profit isn’t high.

However, the above is true for pure gold only.

Gold jewelry has an additional cost: the processing fee.

This fee is calculated per gram, and most are around 20-30 CNY per gram.

Consider this: gold’s price increased by only 60 CNY over ten years, but when you buy gold jewelry, you pay a processing fee of 20 CNY. This means that after buying gold jewelry for ten years, you only earn 40 CNY, which doesn’t even match bank interest rates.

Therefore, if you really want to invest in gold, the best choice is to buy gold bars, not jewelry.

With the expected interest rate cut cycle by the Federal Reserve, gold priced in USD may start to rise.

After all, when the USD interest rate drops, the USD depreciates, and the paper price of gold in the world market tends to increase.

From this perspective, there is a driving force for gold prices to rise this year.

Of course, the purpose of this news release is also to encourage consumption.

After all, the New Year has arrived, and gold has always been a favorite among Chinese people, especially women. It’s not only attractive but also a way to convince husbands of its value appreciation.

For men, if their wife really wants to spend money on jewelry, although gold jewelry is not as good as direct gold purchases, compared to diamonds or jade, I would prefer she buys gold, at least it’s less tricky…

The Inner Mechanisms of Gold Price Fluctuations

Understanding the intrinsic mechanisms behind the fluctuations in gold prices is essential.

Firstly, gold is highly correlated with the U.S. dollar index. To understand this, one must first understand what the dollar index is. The dollar index is the weighted result of the dollar against six major currencies (Euro, Japanese Yen, British Pound, Canadian Dollar being the primary ones) with the broader dollar index encompassing more currencies. Thus, a stronger dollar index indicates the appreciation of the dollar against these main currencies.

Consider the following graph, illustrating the relationship between the dollar index and international gold prices.

At the beginning of 2022, the U.S. raised interest rates from 0.5% in early January to 4.5% by December, subsequently slowing down the pace of rate hikes. During this period of rapid rate increases, the dollar index rose quickly, later gradually decreasing.

When the dollar index increases, gold prices tend to decline and vice versa.

Why does a strong dollar index cause international gold prices to fall? This can be understood from two perspectives:

First, from a pricing perspective. Gold is priced in dollars, so a stronger dollar means that each dollar can purchase more gold, hence a decrease in gold prices.

Second, from a transmission perspective. If the dollar appreciates, gold holders might sell their gold in exchange for dollars to reap expected returns. Conversely, if the dollar depreciates, those holding dollars might purchase gold to hedge against devaluation pressure, causing gold prices to rise.

Anything that can affect the dollar index can potentially impact gold prices.

For example, consider what happened in March this year. Two main events occurred: troubles in the U.S. banking sector and the gradual slowing of U.S. interest rate hike expectations. These two events are related; the banking troubles led the market to bet on a slowdown in U.S. interest rate hikes, leading to a decline in the dollar index and a subsequent rise in international gold prices starting in March.

Why do U.S. rate hikes or cuts affect the dollar index? This can be simply understood from the perspective of interest rate arbitrage. Suppose you are a wealthy individual with 1 billion dollars in liquid funds to deposit. If, at the beginning of 2020, both the U.K. and U.S. deposit interest rates were 1% per annum, there would be no difference whether your money was in the U.K. or the U.S.; the annual interest would be 10 million dollars either way. Then, suddenly, the Federal Reserve announces an interest rate hike, causing U.S. bank deposit interest to rise to 3%. You realize that now, 500 million dollars deposited in the U.K. would only yield 5 million dollars in interest, whereas the same amount in the U.S. would yield 15 million, a difference of 10 million dollars. You and many large investment institutions would likely move funds from low-interest environments like the U.K. to high-interest ones like the U.S. to earn the interest difference, a process known as “interest rate arbitrage.”

In the process of exchanging pounds for dollars, more and more people borrowing pounds at low interest from U.K. banks and purchasing dollars in the foreign exchange market increase the demand for dollars, making it more “expensive.” This means, for example, that whereas 100 pounds might have bought 120 dollars before, now they might only buy 110 dollars. The dollar becomes “more expensive,” and correspondingly, the pound becomes cheaper - this is currency depreciation.

When the U.S. raises interest rates, the dollar appreciates (manifesting as a rise in the dollar index), while cuts or slowdowns in rate hikes cause the dollar to depreciate relatively (manifesting as a slide in the dollar index).

The graph shows the data of the dollar index and comex gold closing prices, with the shaded area representing the situation since October. It is evident that since October, as the dollar index has fallen, likely due to weakening interest rate hike expectations, gold prices have risen correspondingly.

Furthermore, policies of various countries may cause deviations in domestic and international gold prices.

From March to July 2023, international gold prices and China’s gold prices were basically synchronized. However, beginning in August, a divergence started, with domestic gold prices separating from international prices. The primary reason is that China, aiming to prevent depreciation of its currency, restricted gold imports, causing a gap in domestic gold supply and demand and thus a significant deviation between domestic and international gold prices.

Around mid-September, China lifted these restrictions. One would expect the price gap between the domestic and international markets to narrow. Our “Zoe’s Reading Circle” discussed this issue, recommending an article stating that “the domestic and foreign gold price gap has been widening since early July. Traders and regulatory insiders indicate that the domestic gold premium is partly due to import restrictions.” It also mentioned that around mid-September, “The People’s Bank of China lifted some temporary gold import restrictions on certain banks.”

In October, China’s gold prices plummeted, possibly due to two reasons: the strengthening of the U.S. dollar index and the inevitable narrowing of the price gap between domestic and international markets after the lifting of import restrictions.

Recent strength in the U.S. dollar index, according to analysis by Founder Securities Futures, can be attributed to several factors: “Firstly, Federal Reserve dovish officials making hawkish statements, favoring the dollar index; secondly, continued decline in European Central Bank rate hike expectations, bearish for the euro and bullish for the dollar; thirdly, the U.S. government facing shutdowns, increasing demand for safe-haven assets like the dollar; fourthly, the ongoing expectation of a soft landing for the U.S. economy further supports the dollar index.”

The dollar index strengthens, and gold prices decline, possibly due to these interconnected factors.

Post-October 2023, as expectations for U.S. interest rate cuts have become stronger, the dollar index has continued to decline, and gold prices have risen steadily.

This is the general logic.

This article is compiled based on discussions and articles about gold prices from “Zoe’s Reading Circle.”

I am Zoe, a blogger focusing on finance and current affairs. Welcome to join “Zoe’s Reading Circle”. Let us walk this journey together, learn from each other, progress together, and in a declining economy, try to see further and avoid pitfalls.

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Gold Jewelry Sales Surge Amid High Prices

According to a report by CCTV Finance on January 4, 2024, as the Spring Festival approaches, gold jewelry is entering its peak sales season. Reporters from several gold stores found that despite the current high gold prices, consumer enthusiasm for buying gold remains undiminished. In a Beijing mall’s gold sales area, reporters noted that many consumers came to shop shortly after the mall opened.

Sales staff revealed that as the Spring Festival nears, the number of customers visiting the stores has noticeably increased, with weekends seeing over a thousand visitors per day. Among the various items, gold jewelry related to the Year of the Dragon and those with a “national trend” style are particularly popular with consumers.

Gold jewelry sales consultants mentioned that there is a high demand for gold necklaces, bracelets, and pendants.

A gold sales store manager stated that since December 2023, sales have shown an upward trend, with revenues in December increasing by nearly 165% compared to November 2023. In Jinan, Shandong, many gold stores are also experiencing a sales peak. Some consumers expressed their desire to buy gold jewelry as meaningful gifts symbolizing safety and well-being for their families when they return home at the end of the year.

In 2023, influenced by various factors including central banks' gold purchasing, gold performed well. Looking at futures prices, COMEX gold accumulated a rise of 13.45% throughout the year, marking the largest annual increase since 2020. On December 4, 2023, the international gold price broke through the $2,100/ounce barrier, reaching a historical high of $2,152.3/ounce. Entering 2024, the market overwhelmingly views gold prices optimistically.

According to Securities Daily, “With the anticipation of interest rate cuts by the Federal Reserve, gold still has the opportunity to hit historical highs in early 2024.” Liu Siyuan, chief analyst at Leading Finance, stated in an interview with Securities Daily that for the second half of 2024, following the realization of the Fed’s interest rate cut expectations, a bearish rebound might occur, and therefore, the annual gold price might exhibit a ‘rise and fall’ trend.

Yu Xiaoming, a senior investment advisor at Jufeng Investment Consulting, told reporters, “Gold prices might continue to rise in 2024 and set new records. On one hand, global inflation pressure continues to decrease, and the tone of major overseas central banks started to shift from ultra-hawkish to moderate, and eventually turned ‘dovish’ before the end of last year, which will be beneficial for gold prices. On the other hand, the market expects the Federal Reserve to start cutting interest rates as early as the end of the first quarter of 2024, which will also drive up gold prices.”

Cai Xin Securities research reports believe that the current round of interest rate hikes by the Federal Reserve might have ended, and U.S. interest rates might stay at a higher level for a while before turning around. As the dollar index and U.S. Treasury real yields decline, gold prices rebound. Additionally, with signs of recession emerging in major developed economies in Europe and America, the medium and long-term outlook for gold prices continues to be optimistic.

Yang Haiping, a researcher at the Securities and Futures Institute of the Central University of Finance and Economics and General Manager of the Research and Development Department of Inner Mongolia Bank, told reporters, “The end of the Fed’s interest rate hike cycle and the timing of the start of the interest rate cut channel” will become the most important factor affecting the trend of gold prices.

Yang Haiping stated that with the global push for de-dollarization and considerations for risk aversion and value preservation, central banks worldwide will continue to increase their gold holdings, providing strong support for gold prices. In 2024, gold prices are likely to hover at high levels, with a significant chance of reaching new highs.

This article is a comprehensive report by Daily Economic News, CCTV Finance, and Securities Daily.

(Disclaimer: The content and data of this article are provided for reference only and do not constitute investment advice. Verify before use. Any actions taken based on this information are at your own risk.)

The Year of the Dragon and the “Widow Year” in Chinese Culture

The market always has a unique atmosphere during the Year of the Dragon, a significant totem in Chinese culture.

Moreover, it is believed that the following year will be a “Widow Year,” without the occurrence of the “Beginning of Spring” (立春).

The “Widow Year,” also known as the “Silent Spring” or “Widow Year,” is a year in the lunar calendar that lacks the “Beginning of Spring” (立春). The “Beginning of Spring” falls between the end of the 12th lunar month of the previous year and the beginning of the 1st lunar month of the next year, for example, in 2002, 2005, 2008, and 2010.

Folk tradition refers to this year as the “Widow Year.” It is considered inauspicious for weddings during this time, as it is believed that the bride will become a widow. Therefore, many people rush to get married before the Spring Festival, resulting in increased purchases of gold.

The occurrence of a “Widow Year” is merely a coincidence between the lunar and solar calendars and does not affect the cycle of seasons or personal lives.

Nevertheless, as descendants of the dragon, it is understandable to buy items featuring the dragon zodiac sign or embrace the Chinese cultural trend. I also want to buy some. After all, the next Year of the Dragon is a dozen years away, and no one wants to wait that long, especially if they have children born in the Year of the Dragon. It holds great significance as a New Year’s gift for children and is also a good investment.

Gold vs. Other Investments: The Trend among Chinese Youth

Compared to the destructible nature of diamonds, gold is indeed a better choice.

News reports frequently highlight the significant rise in the proportion of young people in third and fourth-tier cities buying gold, possibly because there are limited investment options available.

The popularity of gold, coupled with the slump in the stock market and real estate, the pitfalls of diamonds, and the decreasing interest rates on savings, all have a subtle connection to the recent rise in gold prices over the years.

During the Chinese New Year season, gold jewelry becomes quite popular. This differs from investment gold; it’s purely for personal adornment.

Lately, some friends planning to get married have chosen to purchase gold around the New Year, taking advantage of discounts.

Moreover, with the arrival of a new year and a new zodiac sign, gold jewelry in this category tends to sell well.

If you wish to give a small gift or need to buy gold jewelry for a wedding, or if you simply appreciate gold jewelry, these are all valid reasons.

While buying gold jewelry doesn’t generate profits like investments do, it is much more appealing compared to diamonds or other precious stones, which may not hold their value.

However, a statement reveals that many consumers buying gold are not primarily concerned with making money:

“The Chinese cultural trend has given a cultural IP to gold jewelry, and collaborations with animated characters awaken childhood memories. Compared to plain gold bars, more people are willing to pay for creatively designed internet-famous gold jewelry.”

Those genuinely considering gold as an investment focus on its value and don’t worry much about its appearance; they opt for exchangeable gold bars.

In this context, most young people buy gold simply because they find it less risky than diamonds and are not overly concerned about future profits; it’s more about consumption.

In the previous gold market cycle, the media mocked the “Chinese Aunties” for many years. In the next cycle, it’s the “small-town youth” buying gold who might become the subject of ridicule.

However, the “small-town youth” probably won’t mind because they are likely buying gold with a consumer mindset. As long as it’s better than diamonds, they’re happy, and their attitude is much more relaxed compared to the “Chinese Aunties” who were genuinely looking to profit from gold.

The per capita consumption of gold jewelry in third and fourth-tier cities has increased from 460.7 yuan in 2017 to 617.5 yuan in 2022, with a compound annual growth rate of 6.0%.

76% of gold shop consumers are aged 25-35, and the buying intention for gold jewelry among those aged 8-24 has increased from 16% in 2016 to 59% in 2021.

The penetration rate of gold jewelry in third and fourth-tier cities has exceeded 70%.

The lack of investment options and the pitfalls of diamonds have contributed to the increasing penetration rate of gold.

The People’s Bank of China has been consistently holding gold reserves. As of the end of November, the central bank’s gold reserves stood at 71.58 million ounces, an increase of 380,000 ounces compared to the previous month, marking the 13th consecutive month of gold reserve growth.

The central bank holds gold primarily as a means to avoid buying U.S. bonds and as a long-term strategy for preserving value.

So, if you’re getting married, giving a gift, or simply have a fondness for gold jewelry, don’t overthink it; you can buy it. It’s a much better choice than various other types of jewelry.

If you want to invest and make a profit, gold may be a bit expensive right now. Wait for the gold market hype to cool down, don’t act impulsively. It has been rising for several years, and the media has been reporting on profit and surges, but there are limited investment opportunities.

Furthermore, consider investing in gold through ETFs or gold bars. Other jewelry is not as useful; you’re better off keeping your money in the bank because the fees for jewelry are too high, resulting in a cost of at least 200-300 yuan per gram. You won’t make money; at most, it will preserve its value over the long term. Jewelry is for consumption, not investment, so it’s important to make that distinction.

The Love for Gold: Beyond Economics, A Consumer Perspective

Today, let’s talk about gold from a consumer perspective, setting aside economic considerations.

I remember many years ago, when my spouse and I were buying wedding rings, we both decided to choose platinum because we thought gold was cheap and too “tacky.” Little did we know that the “tacky” ones were actually us; tradition always holds its value!

In fact, even before gold prices surpassed platinum, when you walk into a jewelry store and see the same style of jewelry, most of the time, it’s the gold pieces that are more appealing.

Even a platinum bracelet with diamonds, no matter how dazzling it may be, can’t compare to the joy and elegance of a gold bracelet, regardless of whether it’s 18K gold.

Compared to the millennia of natural selection in ancient times, our relatively recent industrial civilization of a few hundred years is finding it challenging to overturn deeply ingrained aesthetic values.

Just like this mask: the bronze one is “simple” and “substantial,” while the golden one is “noble” and “graceful.” If it were made of silver or even platinum, wouldn’t it all just look like a cold, stainless steel mirror-like face? Hardly worth a second glance!

I can’t pinpoint when I started to understand the “golden worship” of the Chinese people, but at the very least, my understanding has deepened significantly after lurking in the background. With a gold bar in hand, you can save lives and rise in status, but why does this gold bar not look as good in terms of purity as those from the Sanxingdui civilization thousands of years ago?

And women’s deep love for gold is even more evident. Even revolutionary fighters like Cuiping can smile so happily.

Of course, ultimately, enlightenment quickly overcame aesthetics. Cuiping hid the gold bars in the chicken coop, after all, “three gold bars can buy many rifles”!

“Gold bars in the chicken coop” also highlights another reason why ordinary people like gold – “durability.” Gold isn’t delicate; it can withstand bumps and knocks without causing distress. In prosperous times, it can serve as a handy table leveler, stable and not too hard; in turbulent times, it can be exchanged for some life-saving sustenance!

Gold, I cherish you.

Gold as an Investment: Reasons and Considerations

There are countless reasons people buy gold, but in reality, there’s one primary motive – preserving value.

With current real estate prices in a constant decline, interest rates continuously dropping, and the Shanghai Composite Index struggling around 2900 points, many find themselves unsure where to invest their money. In such uncertain times, gold becomes the go-to choice for many.

Interestingly, the reason to buy gold at this stage is not necessarily about preserving value; it’s more about the appreciation of gold itself.

Throughout 2023, news of gold reaching 600 yuan/gram was frequently seen in the public eye, sparking waves of interest. However, this so-called 600 yuan/gram is actually the price set by gold shops, while the spot gold price remains at just over 400 yuan.

Nevertheless, the 600 yuan promotion can easily lead to some misunderstandings.

Looking at the long term, gold indeed has the potential to preserve value.

If you simply like gold jewelry, buying some is reasonable.

But if you’re investing with the hope of profiting from price appreciation, it requires careful consideration.

Currently, gold prices are relatively high, and there’s a possibility of getting trapped in an investment for several years or even decades. If you don’t have excess funds, investing in gold may not be advisable.

Although gold is known for preserving value, it doesn’t mean there won’t be losses.

In recent years, gold prices have experienced significant fluctuations, which inherently implies risks.

At its lowest, gold was priced at $1600 per ounce, and at its highest, it reached $2100 per ounce.

As time goes on, your understanding of these risks may become clearer.

If you have the financial flexibility, you can patiently wait for your investment to recover from being trapped.

However, even when you break even, it’s essentially just getting back to the initial purchase price.

Don’t overlook the compounding effect of keeping your money in the bank over a decade or more.

Even if you break free from your investment, you may still incur losses.

The concern arises when you need to sell your gold during a period of low prices; cutting losses can be painful.

Therefore, it’s essential to approach gold consumption with rationality.

Gold vs. Gold-Plated: Understanding the Difference

As A-shares plummet below 2900 points, complex financial instruments mix within bank wealth management products, and China’s real estate market confirms its downward trend, it’s no wonder that many are turning to gold as an investment option. However, it’s crucial to differentiate between gold and gold-plated jewelry, especially when it comes to the objectives of appreciation and preservation.

Recently, there’s a trend in the media that forcefully associates value preservation and gold-plated jewelry. In December, the predominant narrative encouraged residents, especially young people in third and fourth-tier cities, to buy gold-plated jewelry. But does investing in gold equate to preserving the value of gold-plated items?

Those who have purchased gold-plated jewelry know that recycling such items is typically limited to the store where you bought them. If you go to a pawnshop, you can only expect to be paid based on the market value of gold, which often results in a net loss, not to mention additional handling fees. Gold jewelry comes with high transaction costs, and in some cases, the fees from certain brands exceed 30% of the gold’s original value. When you buy a product with a 30% premium, it’s challenging to achieve the goals of preservation and appreciation.

When selling gold jewelry, the price generally falls around 30% below the market price, and sometimes even below the material cost. This is because other metals like copper and silver are often mixed in to facilitate shaping during jewelry production. Therefore, investing in gold jewelry can easily lead to a situation where you buy high and sell low.

In fact, a recent incident involving gold jewelry purchase in Anhui Province has garnered significant attention. A customer claimed to have purchased a gold piece worth 16,000 yuan, but shortly after returning home, they decided to change the design and were informed of a 35% depreciation fee, equivalent to 5,600 yuan.

This incident occurred at a real Anhui gold shop, not a trendy brand. The 35% depreciation fee indicates that, in the eyes of the jeweler, selling the item back at 65% of the original price to a pawnshop is unlikely to attract any buyers. This means an immediate 35% depreciation upon purchase.

Currently, the media has an unfortunate trend of advocating for the necessity of buying gold-plated jewelry, especially for young people in third and fourth-tier cities. A recent trending topic on Zhihu discussed how “young people are obsessed with buying gold, claiming that gold satisfies the psychological need of both spending and saving.” It seems like pushing stock trading onto housewives and gold-plated jewelry onto young people in smaller cities has become an important KPI for year-end media evaluations.

However, when compared to diamond jewelry, gold jewelry is relatively more value-preserving, and at least gold prices have been on the rise this year. According to CCTV Finance, for decades, diamonds have been the darlings of the luxury goods market, but the price of certified diamonds has dropped by 35% to 40% over the past year.

In 2019, the Chinese Academy of Sciences successfully developed the technology for cultivating “lab-grown diamonds” and piloted it in Henan Province. In just two years, Henan has become the world’s largest diamond-producing region, accounting for nearly half of the global output.

Compared to natural diamonds, Henan’s lab-grown diamonds not only look authentic but also outperform in terms of quality. According to a 2021 survey by Guosen Securities, in 2020, Chinese-made 3-6 carat diamonds achieved the highest standards in terms of color (D-grade) and clarity (VVVS-grade).

Bain & Company data shows that in just three years, China’s lab-grown diamond production has grown to 4 million carats, with 47% of the world’s diamond production coming from Henan. Meanwhile, the average international diamond prices have dropped by 65%, signaling the end of the “sky-high diamond era.”

This shift in preference from diamonds to gold has been noticeable among young people this year.

In conclusion, if you’re buying jewelry for personal adornment and are concerned about depreciation losses, you might consider gold jewelry over diamond jewelry. However, if you’re looking at it from an appreciation or preservation perspective, it’s crucial to understand the difference between gold and gold-plated items.

Don’t you want to build a new reservoir? This won’t work.

Everyone knows that buying gold is a way to hedge against risks.

However, Chinese middle-aged women acquire gold by purchasing gold jewelry.

As for the usual year-end gold rush, after all, gold has certain attributes of hedging and currency. Ordinary people also generally recognize gold, so they choose to buy gold, which can please the elders and also provide some preservation of value. It is a good commodity. However, gold jewelry comes with certain processing costs, which may have a slight price difference compared to the gold price.

This is the second trending topic about the Chinese zodiac sign “金” (Golden) I’ve seen. How much money does it cost to trend in two topics? Money is not that easy to deceive.

Investing in Gold Amid Economic Uncertainty

Buying into the gold trend seems to be rising with each wave, and it’s not just about the metal itself; it’s about the expectation of preserving value.

Gold, as a traditional safe-haven asset, boasts characteristics of value preservation and inflation resistance. Hence, people turn to gold during economic instability or rising inflation expectations as a means of safeguarding their wealth. Additionally, gold serves as a crucial investment tool for hedging risks associated with other investments.

Given the current economic climate, the stock market and bond market are too risky, while bank deposit interest rates continue to plummet, with further potential decreases looming. What can one do with their money? Starting a business entails significant risks, and bank deposits can’t keep up with depreciation and inflation. Investing in the stock market often leads to losses, and buying real estate may not be an immediate option. Earning money is challenging, and preserving and increasing its value is even more difficult. Foreign currencies for value preservation might not be a viable choice, so why not consider investing in gold, hoping to offset some of the depreciation?

Furthermore, various factors, such as increased geopolitical risks in recent years, have contributed to the growing demand for gold.

I belong to the Dragon zodiac sign, and I’m hesitating whether to buy a zodiac gold item. I haven’t gifted myself any gold yet. January 15, 2024.