Spot gold prices erase year-to-date gains. On-site in Shenzhen Shuibei: popularity is warming up, and some investors are taking the opportunity to buy the dip.

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On March 23, domestic gold prices fell below the 1,000 yuan per gram level. By the close of trading in the afternoon, the Shanghai gold benchmark futures contract fell 8.62% to 940 yuan per gram. As for international gold prices, spot gold last week fell cumulatively by 10.52%, recording the largest weekly drop since March 1983.

Amid the sharp drop in gold prices, however, in front of the gold jewelry counters at Shenzhen Shuibei Gold, there was a surge of interest that ran completely counter to market conditions.

On the morning of March 23, reporters from The Economic Daily News visited the Shenzhen Shuibei gold market and found that there were crowds of consumers in front of the jewelry counters, with some merchants simultaneously conducting live-streamed sales. Overall foot traffic had clearly rebounded compared with earlier periods. A consumer told reporters, “Since the gold price is down, it’s the perfect time to buy ‘hardware’ products. If it drops a bit more, the cost of buying jewelry will be even lower.”

A gold commodity trader told reporters that lately there have been quite a lot of investors buying gold, “but judging from recent oil prices, it’s expected that the gold price still has some room to fall.”

Jewelry section sees a clear increase in customer traffic

In recent days, international gold prices have fallen sharply for four consecutive trading days, and domestic gold prices have dropped in tandem. Reporters noted that on March 23, the Shanghai gold main contract price fell by 8.62%, which compared with the opening price is equivalent to a drop of 88.66 yuan per gram.

The decline in gold prices has also affected consumer sentiment. On March 23, when reporters came to Shenzhen Shuibei, although it was Monday, the jewelry counters still had substantial customer traffic, and there were noticeably more people than at the earlier peak of 1,200 yuan. “Do you think it will keep falling?” With gold prices dropping sharply, some consumers were also asking the tellers about the future trend of gold prices, worried that they might buy at a high level.

Reporters noted that in terms of product categories, traditional items such as gold bangles, gold necklaces, and gold rings have remained hot choices, while craft products like ancient-style gold are also favored. A merchant said, “There are also quite a few customers coming to exchange their gold. If you have gold bars, you can just make up the difference in price to exchange for jewelry.”

Another merchant suggested that if customers purchase jewelry in smaller gram quantities, they don’t need to obsess too much over fluctuations in gold prices. But if they buy products of 50 grams or even 100 grams and above, then it really needs to be considered comprehensively.

Gold price’s year-to-date gains have been fully given back

Since the beginning of this year, the year-to-date increase in international spot gold had at one point risen to nearly 30%, but as prices have continued to fall recently, it has now completely erased all gains made earlier this year. Unlike consumers buying gold jewelry, investors appear far more torn.

Some investors said that when gold prices were at high levels earlier, they chose to take profits. Now they are considering buying physical gold again. Others have started trying to pick the bottom. “In the past two days, there are actually more people ‘getting on the train.’ One customer bought 2,000 grams of gold in a single transaction.” A merchant told reporters.

A business that mainly handles gold bar buybacks also revealed that many customers who entered at high prices are lowering their average price by adding to their positions. “For example, customers who bought at more than 1,200 yuan are now buying gold to lower their cost. If you have sufficient funds, it’s not recommended to rush to sell.” The merchant also pointed out that some customers whose holding costs are around 300 yuan choose to realize their positions at this time.

As for the market still seeing violent fluctuations, some investors also admit that they are conflicted: “No one knows where the bottom of this round is. If I add more, I’m afraid I’ll end up buying at the middle of the mountains; if I don’t add, I’m afraid of missing out. The key is that I don’t have much money either.”

Regarding the recent drop in gold prices, Yuan Zheng, a researcher at Galaxy Futures for precious metals, told reporters that the reasons mainly come from two aspects. On one hand, the Middle East situation has pushed up oil prices, triggering expectations of rate hikes. At the same time, the countries and regions in Japan and Europe and the U.S. that use the U.S. dollar index as the pricing currency have been more affected by the shock to crude oil, and there is an urgent need for the U.S. dollar to obtain oil resources. As the U.S. dollar index performs strongly, precious metals are being suppressed. On the other hand, earlier positioning in long trades for precious metals became extremely crowded; a shortage of liquidity led to asset panic selling and the resulting stampede.

Is the safe-haven logic changing?

International conditions have remained turbulent, yet traditional safe-haven assets like gold are not rising but falling instead.

Yuan Zheng told reporters that gold’s previous long-term logic for rising has gradually shifted from the traditional “safe-haven” attribute to a deeper “rebuilding of monetary credit,” mainly reflected in the following three areas.

First is dedollarization and central bank purchases of gold, which is the strongest mid-to-long-term support. After geopolitical risks become a norm, non-U.S. central banks (especially in emerging markets) have continuously increased their holdings of gold in order to avoid risks and enhance financial security. Although the pace of gold buying has slowed somewhat recently, this strategic trend has not ended.

Second is weakening U.S. dollar credit. The U.S. has persistently high fiscal deficits, and combined with the weakening of technology support in its “three pillars” of the dollar, the result is that the U.S. dollar credit system has been eroded. Gold—an asset not constrained by the credit of a single sovereign—has its value being repriced.

Third is using inflation stagflation hedging and covering systemic risk. With global economic risks of “high inflation and low growth” potentially looming, gold’s anti-inflation attribute will be fully utilized. Meanwhile, gold is also a tool to hedge the risks of “the collapse of the international order” and “the risk of sovereign-credit-denominated currencies.”

“Although gold markets have seen a sharp pullback in recent days, overall the logic behind long-term increases has not undergone significant change. What has happened more is a switch in the main line of short-term trading, while the long-term logic is temporarily being suppressed,” Yuan Zheng said.

Zhou Pu han, an analyst at Huatong Securities, said that with oil prices strengthening and inflation expectations increasing, the transmission to liquidity and risk appetite has been enhanced. During periods when conflict is stuck in a deadlock, the U.S. dollar and cash may be better able to meet safe-haven needs. Also, this week the market’s expectations for a rate cut by the Federal Reserve have been weakened. The U.S. February PPI (Producer Price Index for Industrial Producers) rose more than expected, and Federal Reserve Chair Jerome Powell’s stance is more “hawkish.” Even rate-hike expectations have appeared. Under changes in expected real rates and an environment where liquidity tightens, gold faces serious pressure.

“After experiencing liquidity shocks, in the long run, the support logic for gold still exists. On the one hand, central bank gold purchases provide solid support for gold prices. On the other hand, if the war continues to consume resources, it will further increase U.S. military expenditure and the pressure of fiscal burdens, which will undermine U.S. dollar credit and drive dedollarization.” Zhou Pu han believes.

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责任编辑：赵思远