Gold Sales in Hong Kong Face ‘Icy Winter’ on Tourist Downturn

(Bloomberg) -- Gold sales by retailers in Hong Kong are forecast to experience in 2016 the worst downturn in at least 15 years as fewer mainland shoppers spend less money on jewelry.

Consumption may drop by as much as a quarter from last year, assuming low volatility in the bullion price in the second half, according to Haywood Cheung, permanent honorary chairman of the Chinese Gold & Silver Exchange Society in Hong Kong. Sales were 51.4 metric tons in 2015, down from 85.6 tons two years earlier, according to the exchange.

China’s economic slowdown and anti-corruption campaigns have hurt luxury retailers in Hong Kong with visits by Chinese tourists, who account for almost a third of luxury spending globally, falling in March to the lowest since 2013. Hong Kong-based Chow Tai Fook Jewellery Group Ltd., the world’s largest jewelry retailer by market value, said this month that full-year profit dropped as much as 50 percent.

“Fewer mainland visitors are now coming to Hong Kong and those who come spend less,” Cheung said in an interview from Hong Kong. The city’s gold and jewelry retailers are bracing for an “icy winter” during the next 12 to 24 months, he said.

Social Unrest

The falling visitor count is also partly attributable to the political and social unrest in Hong Kong amid growing political tensions about Beijing’s rule over the former British colony. Chinese tourist visits to Hong Kong fell 3 percent in 2015, the first annual decline in a decade. The weakness accelerated into the first three months of 2016, with a 15 percent drop, according to Bloomberg Intelligence.

Gold fell Tuesday for a fifth straight day, the longest slump in six months, as more Federal Reserve officials weighed in with comments that supported the case for higher borrowing costs. Bullion for immediate delivery was little changed at $1,227.24 an ounce at 6:43 a.m. in Singapore, according to Bloomberg generic pricing.

One Road

Seeking to cushion the impact of falling visitors and spurred by President Xi Jinping’s “One Belt, One Road” trade and infrastructure initiative, the exchange is building a 100,000-square-meter trading center across the Hong Kong border in Shenzhen. It will have a gold vault that can store up to 1,500 tons of bullion, Cheung said.

The exchange will also negotiate with the Shanghai Gold Exchange, the country’s biggest spot gold market, to allow investors to do a “location swap,” so bullion can be delivered against their warrants, regardless of whether they traded in Shanghai or in Hong Kong, he added. The exchange can also help develop yuan-denominated derivatives products, backed by physical gold delivered to the Qianhai vault, to provide funding for the infrastructure buildup along the “One Belt, One Road” countries, he said.

“By straddling both sides of the border, this marketplace in Qianhai fits into China’s push for a wider use of the renminbi and taps into Hong Kong’s equity and financial market,” he said. “It will be a springboard for active gold leasing and financing along these resource-rich countries.”

To contact Bloomberg News staff for this story: Feiwen Rong in Beijing at frong2@bloomberg.net. To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net, Keith Gosman

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