Text by Wen Xi
Gold is one of the few investments to maintain constant growth over the past decade,rocketing from $255 per ounce in 2001 to a historic high of $1,935 in 2011. Although its price does dip slightly from time to time, investors of all shapes and sizes are confident that its value will hold steady and increase. In this context,a two-year period of stagnancy of gold prices since 2011 was deemed by many as a prelude to its next great bull run.
However, a sharp drop in the gold price starting in mid-April of this year has the optimists second guessing. From April 12 to 16, the gold price per ounce witnessed its biggest drop since 1980, plummeting 16 percent from $1,570 to $1,320. Despite a slight rebound later, gold saw another steep drop in late May. On May 20, the London gold market closed at $1,354 per ounce.
Surprisingly, Chinese consumers weren’t afraid of buying the plummeting commodity. The day after the historic drop of the international gold market,Caibai Department Store, the largest gold jewelry store in Beijing, was overflowing with buyers. Within 10 days, consumers on the Chinese mainland bought 300 tons of tangible gold, accounting for one tenth of the world’s annual gold output. In April,100 tons of gold were sold in Guangdong Province alone. Gold purchased from banks wasn’t even included because it is considered an investment rather than consumption.
Over the past 12 years as gold prices were rising, China evolved from a negligible role in the global gold market into the world’s biggest gold consumer. The most recent gold rush attracted not only housewives on the Chinese mainland, but also buyers from China’s Hong Kong and other Asian countries including Singapore,Thailand, and India. Although the Indian government recently substantially raised gold import tariffs, on April 16 and 17,2013, daily gold sales reached four tons,three times more than usual, in Mumbai,the biggest gold market in India.