PANIC BUYING: Streams of consumers rush to purchase gold products at a store in Nanjing, Jiangsu Province, on April 18 (XU YIJIA)
From April 10 to 16, the price of gold plummeted 15 percent from $1,588 per ounce to $1,321 per ounce in the international market, the biggest single-week price plunge in the history. On April 12, New York gold futures were down 4.1 percent to $1,501 per ounce. The same day, gold stores in Beijing like Caibai Jewelry, lowered their prices for gold jewelry as pure gold stumbled to 385 yuan ($61.11) per gram.
The dramatic plunge has triggered a buying frenzy across China, one of the biggest gold-consuming countries in Asia.
"The price for gold jewelry has dropped roughly 30 yuan ($4.76) per gram from last year. If you buy a 70-gram bracelet, the price is 2,000 yuan ($317.46) lower than several months ago," said a buyer in Caibai, the largest gold and jewelry merchant in Beijing.
"After gold price began to plunge by 20 and 30 grams, gold bars were once out of stock for about one week, and most customers were middle-aged and elderly people," said one salesman at a jewelry shop in west Beijing.
In Beijing, many consumers queued up in front of Caibai in the early morning to snap up gold products. A total of 20,000 g gold bars were sold in less than two hours, generating sales of 6 million yuan ($952,381), a figure not seen since last October.
Love for gold
A better explanation for the gold-buying binge is its use as an inflation hedge. In the early 20th century, with constantly changing governments, Chinese people developed a consciousness for accumulating gold. After the establishment of the People's Republic of China in 1949, the Chinese Government had begun to issue paper money by virtue of national credit. Some speculators in Shanghai then conspired to bid up the price of gold by not using Renminbi in trade, resulting in the government suspending private transactions of gold from 1950 to 1982.
In 2002, gold transactions were finally liberalized and the Shanghai Gold Exchange (SGE) was set up. In a sense, Chinese people are still not mature when it comes to gold investment, and more and more precious metal investment tools and transaction channels have been a response to Chinese people's longing for gold.
Hoarding gold was traditionally considered to be the best way to preserve wealth. Rapid economic growth and increased income allowed gold to take on an increasingly prominent position in household financial planning. Still, gold asset allocation in China is still no more than 1 percent, lagging far behind the 5 to 10 percent of the global average.
"Chinese investors have began to go bottom fishing since the second day when the price of gold began to collapse," said Zhao Xiangbin, a gold analyst. The drive behind the so-called "gold rush" is rigid demand.
The price of gold on the SGE dropped from 396 yuan ($62.86) per gram in the previous year to 266 yuan ($42.22) per gram, spurring those who couldn't afford it before to snap it up. The gloomy stock market, squeezed housing market and sluggish economy leave investors with few choices. A significant price drop makes gold a good option for investment.