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Millennials Blamed for 5-Year Low in China's Gold Jewelry Demand

Other luxuries grow, lower karats now "dominant trend" for China's gold jewelry...
 
CHINA's huge gold jewelry demand faces a continued fall thanks to younger consumers changing tastes, according to the latest analysis from leading specialists, writes Sam Williams at BullionVault.
 
Preferences among younger gold buyers are disrupting gold's largest consumer market, recent data show, as competition from luxury alternatives purchases grows.
 
Figures from both Thomson Reuters GFMS and competitors Metals Focus show a persistent fall in Chinese gold demand since 2013's surge, which coincided with the sharpest drop in global prices in three decades.
Chart of China's quarterly gold jewelry demand (tonnes) vs. Yuan price.
 
Between April and June 2017 China's gold jewelry demand set its lowest quarterly total in 5 years, according to the most recent report from the mining-backed World Gold Council.
 
Based on data from independent consultancy Metals Focus, it shows demand down 5% compared with Q2 2016.
 
Looking at so-called millennials – the generation reaching adulthood after the year 2000 and now entering its 30s – "younger consumers continue to pull away from the tradition of 24k gold," explains the Council's latest Gold Demand Trends report, in what its analysts say "remains the dominant trend" of the Chinese gold jewelry market.
 
Measured in the ancient purity of karats, 24k gold is virtually pure, with 22k meaning 92% pure and 18k only 75% fine.
 
A previous survey by the market-development organization showed that China's millennial consumers are much more likely to buy lower karatage gold than their predecessors, with 39% of demand for 18k gold in 2015-16 was driven by millennials, compared with only 7% from 51-65 year olds. 
 
As the fine-gold content of pieces bought by households decreases in the world's largest consumer market, China will see "erosion in the volume of jewelry demand," says the World Gold Council.
 
But the market faces a potentially larger threat from changing tastes in luxury goods as a whole according to analysts Thomson Reuters GFMS.
 
"The lower affinity to gold adopted by the younger Chinese generation compared to their precedents played a major role in the decline in gold demand," the consultancy said last month in its latest Gold Survey 2017 update.
 
"Diamond and platinum are becoming strong competitors in Tier 1 cities," warned the World Gold Council in a 2016 report on China's jewelry market, with gold's prior success becoming a reason to buy other items.
 
Some 70% of those surveyed for that report owned gold jewelry, but "millennials crave exclusive indulgences," says Roland Wang, managing director of World Gold Council China.
 
Only 35% of those consumers surveyed said they intended to purchase gold jewelry in the ensuing 12 months, not far above the 25% and 27% reported for platinum and diamond purchases respectively. 
 
"Demand in China for extremely rare fancy-colour diamonds is still robust," says Efraim Zion, advisory-board chairman of the Fancy Colour Diamond Index, a non-profit organisation which promotes the diamond trade.  
 
Increased demand for coloured gemstones, even as demand for gold falls, represents "quite a noticeable change happening in China," agrees Chaoqiu He, founder of Hong Kong jeweller, Qiu Fine.
 
Also "hindering" China's gold jewelry market "is a growing preference for designer, luxury fashion, and smartphones in urban areas," finds consultancy Research and Markets in their Global Gems and Jewelry Market 2017-2021 report.  
 
Simultaneously, "the definition of what constitutes luxury is expanding beyond physical possessions to include experiences," reports the Financial Times.
 
"Luxury brands are now competing with the plastic surgeon and the luxury travel agent," it quotes Erwan Rambourg, global co-head of consumer and retail at HSBC in New York. 
 
"For a similar price you can have a Louis Vuitton handbag, a facelift or a trip to the Maldives." 
 
This view is backed by research from Agility Research & Strategy, listing the top three priorities of wealthy Asian millennials as "health, travel and spending time with the family." 
 
In response to changing consumer preferences, Hong Kong-listed Chow Tai Fook (HKG:1929) – the world's biggest jeweler by market capitalisation (US$7bn) – has recently introduced a 22k collection aimed at "younger" consumers and priced 'per piece' instead of be weight, the traditional pricing method across East Asia and the Indian sub-continent.
 
Looking at the "3D hard gold" segment – made by a "sophisticated technique" which solves pure gold's "softness" and enables manufacturers to produce large, hollow pieces up to 24k – "total fabrication volume has grown more than ten-fold in recent years," reports GFMS, as fabrication techniques evolve to "enable more sophisticated designs."
 
However, best estimates are that gold produced using this method still accounts for less than 10% of total gold sold by China's jewelry industry.

Sam Williams is reading Economics at the University of Durham. He is currently working at BullionVault as a research assistant.

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