(Kitco News) – China's net gold imports through Hong Kong fell 4.6% in October from the prior month and were down 43% from the previous year, the Hong Kong Census and Data Department announced on Tuesday.
“The latest figures from Hong Kong Customs and Excise make interesting reading,” wrote StoneX Bullion analyst Rhona O’Connell. “The big outlier this month is China (which is always the country worth monitoring, for obvious reasons).”
O’Connell shared a table showing Hong Kong’s net imports and exports with its biggest trading partners.
“The China numbers show us that Hong Kong's net exports into China last month were down by 51% against the January-September average, although the absolute Export+Re-Export numbers, at 28t, were only down by 30%,” she said. “The reason for this is that there were 13t of imports into Hong Kong from China in October. It is well-known that domestic demand at the retail level has been sluggish due to the anaemic domestic economic recovery and thus an associated reluctance to spend on adornment jewellery,” although demand for investment grade jewelry, bars and coins remains stronger.
O’Connell said that weak jewelry demand has been a key driver of the disconnect between Shanghai gold prices and those on the international market.
“For 15 of the 18 weekdays (I don’t have numbers for Saturdays and Sundays), Shanghai was at a discount to the international price and for more than half of these days that discount was wider than $20, thus providing an incentive for market traders to move gold offshore and pocket the difference,” she said. “There is also the possibility, of course, of round-tripping.”
Cooling mainland demand impacts gold retailers
The dwindling demand for gold jewelry on the mainland is also having a major impact on retailers. Chow Tai Fook Jewellery Group Ltd., China’s largest jewelry retailer, saw revenue plunge 20.4% during the half-year ending in September, the biggest drop for that period since 2016.
Revenue for the group was HK$39.4 billion ($5.1 billion) for the period, the company announced on Tuesday. Profit fell 44.4% to HK$2.6 billion, mainly due to losses from the revaluation of gold loan contracts amid price volatility.
Chow Tai Fook also announced a plan to buy back up to HK$2 billion of shares from its internal resources to show confidence in its long-term business prospects.
China accounts for more than 80% of the company’s revenue, but weak consumer confidence amid plunging property prices and high unemployment have discouraged customers from purchases. Surging gold prices have further dampened demand. The slow recovery of the tourism sector in Hong Kong, the group’s second-largest market, also contributed to the decline.
Same-store sales fell 25.4% in self-operated shops in mainland China and 30.8% in Hong Kong and Macau in the six months ended September. The company also reduced its sales network by 239 stores — mainly franchised ones — to cut costs and improve profitability.
And the story was very similar at fellow Hong Kong-based jewelry giant Luk Fook, which closed 175 stores in China and Hong Kong in the six months to September as record-high gold prices impacted revenue and earnings.
The company’s revenue was down 27% year over year to HK$5.45 billion ($700.2 million), the company announced on Tuesday. Net profit slid 56% to HK$417.2 million ($53.6 million) as a result of gold hedging during the period.
The retailer said that weak performance compared to the same period a year ago, when Hong Kong’s luxury sector rebounded following the reopening of its border with the mainland, also impacted sales.
Sales in Hong Kong, Macau, and overseas dropped 27% year over year to HK$3.51 billion ($451.4 million) for the period, while same-store sales fell 35%, with gold and platinum products falling 37% and fixed-price jewelry products, including diamonds, down 30%. Sales on the mainland declined by 27% to HK$1.94 billion ($248.8 million).
