Chinese Millennials Are Choosing Luxury Branded Goods Over Gold

The demand for gold in China has dropped significantly in the second quarter of 2017. According to research conducted by the World Gold Council and research conducted by independent consultants, Metal Focus, the demand has dropped down by 5% compared with the numbers reported in the second quarter in 2016. This is attributed to the buying trends from the millennial generation born between the 1980s and the early 2000s. This will have an effect on the gold price AUD as less Chinese demand for Australian commodities.

The recent research and data shows how Chinese youths are ditching gold which has been an investment tradition for centuries in China and they are spending their money more on consumer goods. 

Chinese Millennials prefer luxury goods and luxury brands. According to the World Gold Council (WGC), the current generation of Chinese are looking for alternative ways to invest their money. The WGC reports that 35% of the millennials surveyed intended to buy gold in the next 12 months but they are more likely to spend money on things like diamonds, platinum and other precious metals. Gold which has been regarded as an important way to grow wealth in the Chinese culture is viewed differently by millennials. This demographic would rather spend their cash on designer goods, fashion and technology rather than gold.  This means that this Chinese demographic no longer see gold as proof of wealth. Wealth is now tied to exotic travel, designer goods and plastic surgery. 

Agility Research & Strategy conducted studies to determine what drives consumer buying patterns. They found that wealthy Chinese Millennials regard health, travel and family as the three priorities that determine how they spend their money. In other words, they would rather spend money on Gucci and Louis Vuitton, a trip to some exotic island or a facelift rather than spend it on gold.  

This does not mean that they aren’t buying gold jewellery however, they seem to be buying less gold but most importantly, they are spending their money on low karatage gold jewellery. This generation is pulling away from the traditional love for virtually pure 24k gold. Chinese Millennials are more likely to buy 18k gold which is only 75% pure gold. The demand for low karatage gold rose to 39% between 2015-16 compared to the 7% demand reported amongst the older generation between the ages of 51 and 65. 

Chow Tai Took, the Chinese leading jeweller by market capitalization has responded to the changing consumer gold preferences by introducing lower karat gold jewellery like their 22k gold jewellery collection aimed at young consumers. They have also moved away from pricing their products by weight but rather each piece is priced in accordance to design. According to analysts Thomson Reuters GFMS, Jewellery makers are adopting sophisticated techniques that solve the softness of pure gold enabling manufacturers to produce larger, hollow sophisticated design pieces of higher karatage. This has improved the fabrication volume ten-fold, however, these methods only account for less than 10% of the gold sold by the Chinese gold jewellery industry. 

As young people in China move away from gold, Westerners seem to be coming to their senses. The demand for physical gold amongst private investors appears to be growing. The falling gold price AUD increases the interest amongst private investors looking to invest their money in the physical metal. According to analysts, the number of buyers has grown higher than the number of sellers over the past seven months. One can only hope that the buying trends amongst the Chinese youth will change in line with the rest of the world.