China’s Frugal Consumers Pile Pressure on Gold as Economy Slows

(Bloomberg) --

Chinese consumers, grappling with the slowest economic growth since the early 1990s, are shunning gold in a sign that prices are likely to extend their decline from a six-year high.

The country’s imports of non-monetary gold slumped in October to the lowest in data compiled since January 2017, according to customs figures released Monday. Demand in the world’s top consumer is being hurt by concerns about growth and rising inflation, Capital Economics Ltd. said in a note.

“The gold price rally is now behind us,” analyst Kieran Clancy wrote. “Ongoing weakness in consumer demand will be one of the factors weighing on the price of gold over the coming year.”

Spot gold is down 6% from a six-year high in September as optimism about trade talks curbs demand for a haven. In China, the economy’s slowdown is squeezing company profits and reining in income growth. At the same time, inflation is creeping higher -- fueled by rising food prices -- and crimping the cash that households want to spend on discretionary products.

China’s jewelry consumption is poised to fall 4% this year, while demand for gold as an investment will slump 20%, Metals Focus Ltd. has estimated. The country’s imports are likely to remain weak, Clancy wrote.

Indian demand is also in a funk, Capital Economics noted, with demand unusually weak during the Diwali festival that normally sees a bump in imports. Local gold prices in India will remain high in the coming year, which should keep a lid on demand, the bank said.

“There is little reason to expect a rebound in consumer demand for gold anytime soon,” Clancy wrote in the note. “And with investment demand also flagging, we think the chances of a renewed rally in the price of gold are slim.

©2019 Bloomberg L.P.