Spot gold erases its gains for the year! On-the-ground in Shenzhen Shuibei: Falling gold prices have actually boosted the popularity of jewelry counters, with investors taking the opportunity to buy the dip.

Every reporter｜Zhao Jingzhi Every editor｜Chen Junjie

On March 23, domestic gold prices fell below 1,000 yuan per gram. By the afternoon close, the main contract for Shanghai gold dropped by 8.62%, priced at 940 yuan/gram. As for international gold prices, spot gold last week accumulated a decline of 10.52%, marking the largest weekly drop since March 1983.

Amid the significant drop in gold prices, there was a surge of activity in front of the Shenzhen Shuibei gold jewelry counters, contrasting sharply with the market trend.

On the morning of March 23, a reporter from Daily Economic News visited the Shenzhen Shuibei gold market and discovered that consumers were flocking to the gold jewelry counters, with some merchants simultaneously conducting live sales, resulting in a noticeable increase in overall foot traffic compared to before. One consumer told the reporter, “The drop in gold prices is just right for buying ‘five metals’; if it could drop a bit more, the cost of buying jewelry would be even lower.”

A gold material dealer mentioned to the reporter that there have been quite a few investors buying gold lately, “But considering the recent oil prices, it’s estimated that there is still some room for gold prices to drop.”

Every reporter Zhao Jingzhi photographed

Significant increase in foot traffic in the gold jewelry area

Recently, international gold prices have dropped sharply for four consecutive trading days, causing domestic gold prices to decline simultaneously. The reporter noted that today the Shanghai gold main contract’s drop reached 8.62%, equivalent to a price reduction of 88.66 yuan per gram compared to the opening.

The drop in gold prices is also affecting consumer sentiment. On March 23, the reporter visited Shenzhen Shuibei; although it was a Monday, the foot traffic at the gold jewelry counters was substantial and notably higher than when prices peaked at 1,200 yuan. “Do you think it will drop further?” With the steep decline in gold prices, some consumers were inquiring with sales staff about the future trend of gold prices, worried about buying at a high price.

The reporter observed that in terms of product categories, traditional items like gold bracelets, gold necklaces, and gold rings remain popular, while products made with 5G gold and ancient methods are also favored. Some merchants noted, “There are quite a few customers coming in to exchange gold; those with gold bars can just pay the price difference to exchange for jewelry.”

Moreover, some merchants suggested that there is no need to overly worry about fluctuations in gold prices when purchasing smaller pieces of jewelry, but if buying products over 50 grams or 100 grams, it is indeed necessary to consider comprehensively.

Gold’s gains for the year have all been wiped out, and some high-position investors are averaging down their costs

So far this year, the international spot gold price rose by nearly 30%, but with the recent continuous price drops, all gains for the year have been completely erased. Unlike consumers purchasing gold jewelry, investors seem to be more conflicted.

Some investors stated that they had previously chosen to take profits when gold prices were high and are now considering re-entering the physical gold market. Others have started to buy the dip, “With the gold price dropping these past couple of days, more people are getting in; one customer bought 2 kilograms of gold at once,” a merchant told the reporter.

A merchant primarily dealing in gold bar buybacks also revealed that many clients who entered at high prices are averaging down their costs, “For instance, customers who bought in at over 1,200 yuan are now buying gold to lower their costs. If they have the means, they shouldn’t rush to sell.” This merchant also noted that some clients with an average cost around 300 yuan are choosing to liquidate at this time.

Regarding the still volatile market, some investors admitted to feeling conflicted, “No one knows where the bottom is in this round; if we want to average down, we worry about being caught halfway up, but if we don’t average down, we fear missing out, and the key is that we don’t have much capital left.”

As for the recent decline in gold prices, Yuan Zheng, a precious metals researcher at Galaxy Futures, told the reporter that the reasons mainly stem from two aspects: on one hand, the Middle East situation has pushed oil prices higher, triggering expectations of interest rate hikes. At the same time, the dollar index’s pricing currency countries, like Japan and those in Europe and America, are more affected by oil shocks, urgently needing dollars to obtain oil resources, leading to a strong dollar index that suppresses precious metals; on the other hand, the previous crowded long positions in precious metals have led to panic selling due to liquidity shortages.

Has the logic of safe-haven changed? Industry insiders say it stems more from a shift in short-term trading narrative

Amid ongoing global turmoil, traditional safe-haven asset gold is not only not rising but is instead falling.

Yuan Zheng told reporters that the long-term logic for gold’s price increase has gradually shifted from its traditional “safe-haven” attribute to a deeper “monetary credit reconstruction,” mainly reflected in the following three aspects.

First, de-dollarization and central bank gold purchases provide the strongest medium- to long-term support. After the normalization of geopolitical risks, non-U.S. central banks (especially in emerging markets) continue to increase their gold holdings to avoid sanctions risks and enhance financial security. Although the pace of purchases has slowed recently, this strategic trend is far from over.

Second, the weakening of dollar credit: the U.S. fiscal deficit remains high, coupled with a weakening of the technological support within its “three pillars of the dollar,” leading to erosion of the dollar credit system. Gold, as an asset not bound by any single sovereign credit, is being repriced.

Third, stagflation hedging and systemic risk: amidst the potential risks of “high inflation and low growth” facing the global economy, gold’s anti-inflation properties are expected to be fully realized. At the same time, gold is also a tool for hedging against the risks of “collapse of international order” and “sovereign credit currency risks.”

“Although there has been a significant correction in gold prices recently, overall, there has not been a significant change in the logic for long-term price increases, which stems more from a shift in the short-term trading narrative, while the long-term logic is temporarily suppressed,” Yuan Zheng said.

Zhou Puhan, an analyst at Huafu Securities, stated that with current oil prices rising, and inflation expectations being transmitted to liquidity and risk appetite, dollars and cash may better meet safe-haven needs during this period of conflict. Furthermore, this week the market’s expectations for a Fed rate cut have weakened, with the U.S. February PPI rising more than expected, and Fed Chairman Powell taking a hawkish stance, even leading to expectations of interest rate hikes. Under changing expectations for real interest rates and a tightening liquidity environment, gold remains under significant pressure.

“After experiencing liquidity shocks, the long-term support logic for gold still exists. On one hand, central bank purchases of gold provide solid support for prices. On the other hand, if the war continues to consume resources, it will increase U.S. military spending and fiscal burden, overdraw dollar credit, and promote de-dollarization,” Zhou Puhan believes.