• Article
• 2024-08-01

Wealth Stories Behind Soaring Gold Prices: 2 Key Factors

Recently, driven by the international market, domestic gold prices have repeatedly hit new highs, with topics such as "someone cashed out over 400,000 yuan" and "gold shops facing operational pressure" continuously topping the hot search lists.

As gold prices continue to rise, some are busy cashing out and leaving, some are investing heavily, and others are hoarding without moving...

The various faces in this "game of wealth" are truly astonishing.

What are the reasons behind the continuous rise in gold prices, and what insights do they offer for investors?

Upstream News has sorted and analyzed based on public information.

Someone cashed out over 6 million yuan by selling 11 kilograms of gold.

After reaching a new high on the evening of September 12, the spot gold price continued to rise steadily on September 13 and 14.

As of press time, the gold price has reached $2,579.35 per ounce, and the gold price has broken through multiple points this year, setting a new record more than 20 times.

According to Guangdong Radio and Television, a customer in Guangzhou recently cashed out with a pile of gold bars and jewelry, including more than 320 grams of gold bars and more than 450 grams of gold jewelry, including more than 120 grams of dragon and phoenix bracelets, with a total value of over 400,000 yuan.

Advertisement

With the rise in gold prices, many people are cashing out and leaving.

Similar stories of sudden wealth through cashing out have been playing out across the country in recent years.

Media reported that on April 9 this year, a gold recycling company in Hangzhou received 23 kilograms of gold bars in one day.

Xiao Shen, a staff member of a gold recycling company in Hangzhou, said that a customer sold 5,000 grams of gold in one go that day, cashing out more than 2.7 million yuan.

The customer said that if the gold price rises further, he will continue to sell the remaining several kilograms of gold bars.

Xiao Shen didn't finish work until half past eight in the evening on the 9th, and he recycled a total of 23 kilograms of gold that day, setting the highest recycling record since the company opened in June last year.

According to CCTV reports, in April this year, the volume of gold buybacks at several banks in Shanghai remained high, and there were frequent large customers, with some even selling 11 kilograms and cashing out more than 6 million yuan.

In the face of the sharp rise in gold prices, some choose to cash out and leave, while others choose to invest and enter.

On April 8 this year, at the Jinduo Yinduo Jewelry Plaza in Guancheng District, Zhengzhou, a sales consultant at a gold jewelry counter, Li Miao (a pseudonym), told the media that since April, the store has sold several kilograms of gold bars.

"Yesterday, a big brother came with more than 200,000 yuan in cash to buy gold bars, and it took only 5 minutes from entering the door to checking out.

He had already come to buy gold bracelets worth more than 200,000 yuan the day before, and after seeing the gold price rise the next day, he was not willing to, and came to buy gold bars again.

In total, he has more than 800 grams, spending more than 400,000 yuan."

"The unit price has risen by 100 yuan in the past year, even allowing people who bought gold jewelry one or two years ago to make a profit, and many elderly people have brought out the old bracelets to exchange for money, they all bought them at more than 100 yuan, 200 yuan per gram seven or eight years ago, or even earlier."

Li Miao said.

In March last year, a gold seller told the reporter that the company recently adopted a direct sales model and sold about 60 million yuan of gold in one weekend.

According to media reports, since the second half of last year, Ms. Wei, who lives in Hangzhou, has been buying gold bars in batches.

"I started buying at 450 yuan/gram, the most expensive was 502 yuan/gram, the average purchase price was around 480 yuan/gram, and now the base gold price has almost reached 540 yuan/gram, and I have made a profit in this wave."

Ms. Wei said that since the second half of last year, she has been taking money out of her stock account to buy gold bars.

By April this year, she had already changed all the more than 600,000 yuan in her securities account into gold bars.

Ms. Wei also sold all the more than 100,000 yuan of accumulated gold she bought from the bank, and after cashing out, she bought physical gold bars in batches.

According to the report of Jiemu News, during the National Day last year, a gold shop in a shopping mall in Wuhan sold an investment gold bar product, about 1900 grams, with an amount as high as 1.007 million yuan.

Hoarding man has hoarded more than 4600 grams of gold bars in 4 years.

While the gold price is at a high level, many people are thinking about cashing out, but Mr. Zhao from Hangzhou, born in the 1980s, is determined not to sell.

Mr. Zhao is the "second generation of the factory" and is engaged in the textile export business.

Since 2020, his business has gradually prospered, and sales have increased significantly for three consecutive years.

Since 2020, he has started buying gold bars.

Mr. Zhao said that he bought three gold bars in the first half of 2020, and in the past two years, Mr. Zhao has bought gold bars several times, with a total of more than 4600 grams of gold bars.

He said that within his ability, he would continue to buy gold bars until the central bank stops buying gold, and then he would stop buying gold bars.

"As long as life is still good, I will not sell gold bars, and I will keep them and pass them down."

Mr. Zhao said that gold investment should be a long-term investment.

There are also investors willing to continue hoarding.

"The best investment this year is gold bars, and each gram has already risen by 100 yuan."

An investor from Xiaoshan, Hangzhou, told the reporter of Chao News that he bought a kilogram of gold bars in mid-January this year, when the base gold price was 480 yuan/gram, and now the base gold price has risen to 582 yuan/gram, and he has earned about 100,000 yuan in 9 months.

The investor also said that although the gold price has reached a new high, he does not plan to sell, because he originally planned to invest long-term.

Hangzhou investor's 1 kilogram gold bar.

Picture from Chao News.

"Chinese Dama" finally unblocked after 11 years.

This year, the international gold price has performed well, and the COMEX gold futures contract has risen from about $2,010 per ounce at the beginning of the year to the current level of around $2,300 per ounce, with a cumulative increase of 14.42%.

At around 8 a.m. on April 3, Beijing time, the COMEX gold futures contract officially broke through $2,300 per ounce.

The continuous rise in gold prices has also brought the term "Chinese Dama" back to the market after 11 years.

In April 2013, the international gold price plummeted, and "Chinese Dama" became famous for buying gold crazily.

However, soon after, the gold price began to plummet, directly falling to $1,321 per ounce (about 261 yuan per gram), causing "Chinese Dama" to be trapped.

Later, the term "Chinese Dama" was used on the Internet to tease middle-aged and elderly women who bought a large amount of gold, but the recent trend of gold shows that if held until now, "Chinese Dama" not only unblocked but also made a profit.

At the beginning of October 2011, the Shanghai gold price once reached the highest of 490 yuan/gram, and around April 2013, the gold price plummeted to about 400 yuan/gram, and "Chinese Dama" started to enter the market to bottom fish, who would have thought that they were caught halfway up the mountain, and the gold price retreated nearly 50% from the highest point.

Industry insiders pointed out that if "Chinese Dama" bought physical gold (gold bars) at the beginning, it should be able to recover the principal and make a little profit by around April this year, but if it bought jewelry gold that year, it is probably just breaking even.

The surge in silver and gold prices has driven the popularity of investment silver bars.

In recent years, the international gold price has continued to fluctuate and rise, and interestingly, after gold, the price of silver has also risen.

Since March this year, the silver futures have risen by more than 20%.

At the same time, the consumption of offline silver jewelry has also ushered in a boom, with investment silver bars being sold out on some platforms, and netizens have exposed the purchase of 30 kilograms at a time.

Recently, many netizens have shared their experiences of buying silver bars on social platforms, with a minimum of 50 grams and a maximum of 30 kilograms.

The main channels for purchase include e-commerce platforms, banks, precious metal trading companies, some brand gold shops, silver buildings, etc.

According to the report of Yangcheng Evening News, the data shows that from the beginning of the year to April this year, the spot silver price has risen by more than 16%, surpassing the increase of gold.

Why has the silver price soared?

It is understood that since March this year, the international silver price has shown an upward trend, with a cumulative increase of 9.7% in March.

Entering April, the global silver price has once again shown a rapid upward trend, and as of the closing on April 9th, the silver price on the New York Commodity Exchange reached $28.28 per ounce.

Historical statistics show that the correlation coefficient between silver and gold is generally close to 0.92.

This means that when the price of gold rises strongly, investors often expect silver to do the same, but there will be a gap between the two rises.

Unlike gold, the industrial demand for silver is rising rapidly.

The World Silver Association's report released at the beginning of the year predicts that the global silver consumption will reach 1.28 billion ounces in 2024, the second-highest level in history, and the main reason is the significant increase in industrial consumption.

As a relatively affordable high-performance conductive material, silver is widely used in fields such as photovoltaics, electronic component manufacturing, and battery manufacturing.

Some analyses predict that the high power consumption of the artificial intelligence industry will promote the renewal of power equipment, which will further stimulate the industrial demand for silver.

Gold shop gold jewelry prices are too high, and the store encounters a "cold wave".

In the face of the rising price of investment gold bars and the hot sales, gold shops have ushered in a wave of cold air.

According to the report of Chao News, in a high-end shopping mall in Hangzhou, a row of gold shops is all deserted.

Song Cheng (a pseudonym) is the person in charge of a franchised store of a certain brand, with two gold shops in Jiaxing and Hangzhou.

He told the reporter, "Before, the sales volume during the half-month before and after May Day usually reached four or five million yuan, but now it can only sell a fraction, less than one million yuan."

The gold shops in the high-end shopping mall are deserted.

Picture from Chao News.

In addition, according to the report of Daily Economic News, on September 14, a gold shop owner in the Shanghai area said: "The whole morning, only more than 10 customers came in."

The owner said that in the face of this situation, he has considered "closing the store" and transforming at the end of the year.

According to the semi-annual report of Chow Tai Fook, a listed company in Hong Kong, from April to June, the retail value of Chow Tai Fook decreased by 20% year-on-year, among which the retail value in mainland China is expected to decrease by 18.6%.

In addition, from April to June this year, a net reduction of 91 Chow Tai Fook jewelry stores in mainland China; in the first quarter of this year, Chow Tai Fook reduced a net of 89 stores in the mainland market.

This means that in just half a year, Chow Tai Fook has reduced 180 jewelry stores in mainland China, closing one store a day on average.Luk Fook Group's operational data from April to June shows that its overall retail revenue fell by 23% year-on-year.

In terms of physical stores, the group net reduced 99 stores globally and 102 stores in mainland China during the quarter.

The hashtag #Gold Shops Can't Hold On# has surged to the top of the hot search list.

Experts point out that consumers' concept of buying gold is changing; buying gold jewelry is consumption, while buying gold bars is investment.

According to statistics from the China Gold Association, the consumption of gold bars and coins increased by 46.02% year-on-year in the first half of 2024.

What is truly fading is people's enthusiasm for gold jewelry.

The data shows that in the first half of the year, the consumption of gold jewelry, which has always performed well in the past, decreased by 26.68% year-on-year.

"For gold jewelry, gold is the raw material.

If the gold price only rises slightly, consumers buying jewelry can still be considered as investing, but when it rises to around 700 yuan per gram, the price of gold jewelry has clearly exceeded consumers' expectations, and sales plummeted," said Song Cheng.

Two major reasons are expected to drive gold prices higher in the future.

In 2023, under the influence of multiple factors, gold performed well.

Looking at futures prices, COMEX gold accumulated a total increase of 13.45% in 2023, the largest annual increase since 2020.

Entering 2024, several experts interviewed by the Securities Daily believe that gold prices may still have the opportunity to reach new highs in 2024.

In fact, as of September 16th of this year, COMEX gold futures reached a peak of $2617.4 per ounce, and closed at $2596.4 per ounce on September 17th.

The trend of COMEX gold prices this year.

Why has this round of gold prices continued to rise, and what is the deep-seated reason that supports the gold price to rise for several years?

How will it perform in the future?

Guangda Securities' research report points out that gold, due to its complex commodity attributes, financial attributes, and safe-haven attributes, is easily affected by central bank monetary policies, supply and demand, and geopolitical events.

The report believes that one of the fundamental reasons for the sustained rise in gold prices is the international monetary easing.

This round of the gold bull market began in the first half of 2019, during which the United States released a huge amount of dollars, and the great inflation brought by the devaluation of the dollar sent gold prices skyrocketing.

In 2022, the Russia-Ukraine conflict occurred, and the global demand for funds to avoid risks gave gold prices wings to continue to rise.

The reason why gold prices were able to break away from the fluctuation range since the end of April this year and repeatedly set new historical highs is closely related to the rate cuts promoted by several international central banks.

On September 12th local time, the European Central Bank announced a cut in three key interest rates.

The European Central Bank stopped raising interest rates in October last year and made its first rate cut in June 2024, obviously the European Central Bank has been intensifying its monetary easing policy.

Not only the European Central Bank is promoting rate cuts, but the Bank of England also announced a rate cut of 25 basis points on August 1st Beijing time.

Since March 2020, the Bank of England has made its first rate cut, marking the arrival of a new round of rate cut cycle.

In addition to the European Central Bank and the Bank of England, the Swiss National Bank, the Bank of Canada, and the Riksbank are also promoting rate cuts.

With the release of a series of heavy economic data such as August non-farm employment data, CPI, PPI in the United States, the market expects that against the background of weakening US economic expectations and falling inflation levels, it has become a high probability event for the Federal Reserve to cut interest rates in September.

Once the Federal Reserve starts the rate cut cycle, the global financial market will usher in more dollar liquidity, which has a significant impact on the strength of commodity prices.

Another important reason for the sustained strength of gold prices over the years is the strong willingness of central banks in many countries to increase their holdings of gold.

Central banks in many countries continue to increase their allocation of gold assets, which has become an important force in promoting the growth of global gold demand and driving international gold prices to rise continuously.

According to data released by the World Gold Council, central banks bought a net 27 tons of gold in July, the largest purchase since January of this year.

The National Bank of Poland became the largest buyer of gold in July, buying 14 tons of gold in a single month, raising its gold reserves to 392 tons.

The Reserve Bank of India continued to increase its gold reserves, buying 5 tons of gold in July, with the total amount of gold purchased this year reaching 43 tons, and the total reserves reaching 846 tons.

In June 2024, the World Gold Council released the "2024 Global Central Bank Gold Reserves Survey Report", and the market once again focused on the recent increase in gold holdings by central banks around the world.

The World Gold Council received a total of 70 survey responses, with 29% of the surveyed central banks indicating that they will continue to increase their gold reserves in the next 12 months, which is the highest level since the survey was launched in 2018.

69% of respondents believe that the proportion of gold will be higher in five years, while the share of the US dollar will decrease.

Many central banks have indicated that the main reason for increasing their gold assets is that gold can hedge against inflation risks, deal with sudden crisis events, and has no default risk.