Gold prices plunge continuously, Shenzhen Shuibei regains popularity, investors seize the opportunity to buy the dip! Merchants: Some customers bought 2 kilograms at once!

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On March 23, domestic gold prices fell below 1,000 yuan per gram. By the close of trading, Shanghai Gold futures contracts dropped 8.62%, to 940 yuan/gram. International gold prices also declined, with spot gold falling a total of 10.52 last week, marking the largest weekly decline since March 1983.

Despite the sharp drop in gold prices, a lively scene is unfolding at the Shui Bei Gold Jewelry Counter in Shenzhen, contrary to the market trend.

On the morning of March 23, a reporter from Daily Economic News visited the Shenzhen Shui Bei Gold Market and found that the jewelry counters were bustling with customers, and some merchants were conducting live sales simultaneously. Overall foot traffic has significantly rebounded from previous levels. One customer told the reporter, “Gold prices have dropped just in time to buy ‘hardware’ (gold accessories). If they fall a bit more, the cost of buying jewelry will be even lower.”

A gold jewelry trader told the reporter that recently, many investors have been buying gold, “but given recent oil prices, I estimate there’s still some room for gold prices to fall.”

Photo by Zhao Jingzi, Daily Economic News

Noticeable Increase in Foot Traffic at Jewelry Area

Recently, international gold prices have fallen sharply for four consecutive trading days, with domestic gold prices declining in tandem. The reporter noted that today’s Shanghai Gold futures prices dropped by 8.62%, equivalent to a decrease of 88.66 yuan per gram compared to the opening price.

The decline in gold prices has also affected consumer sentiment. On March 23, the reporter visited Shui Bei in Shenzhen. Despite it being a Monday, the jewelry counters saw a steady flow of customers, noticeably more than when gold was at its peak of 1,200 yuan. Some customers were asking the staff about the future trend of gold prices, worried about buying at a high point.

The reporter observed that traditional jewelry such as gold bangles, necklaces, and rings remain popular, with craft products like 5G gold and ancient-style gold also favored. Some merchants said, “There are quite a few customers coming in to exchange gold now. If you have gold bars, you can just pay the difference to exchange for jewelry.”

Another merchant suggested that for small-weight jewelry, fluctuations in gold prices are less of a concern, but for products over 50 grams or 100 grams, comprehensive consideration is necessary.

Gold Prices Have Fully Recovered Their Year-to-Date Gains

Some high-position investors are replenishing their positions to lower costs

Since the beginning of the year, international spot gold has risen by nearly 30% at its peak, but with recent continuous declines, all gains for the year have been wiped out. Unlike consumers buying jewelry, investors are more hesitant.

One investor said they had taken profits at high prices earlier and are now considering re-entering physical gold. Others are bottom-fishing; “Gold prices have fallen these past two days, and more people are jumping in. One client bought 2 kilograms of gold at once,” a merchant told the reporter.

A business that mainly deals in gold bar recycling also revealed that many clients who entered at high prices are lowering their average cost through additional purchases. “For example, clients who bought at over 1,200 yuan now buy more gold to reduce their costs. If they have the funds, they’re not in a rush to sell,” the merchant said. They also noted that some clients with a cost basis around 300 yuan are choosing to cash out now.

Regarding the volatile market, some investors admitted to feeling conflicted. “No one knows where the bottom is. I’m afraid to buy at the halfway point, but I also don’t want to miss out. Plus, I don’t have much capital left.”

Regarding recent gold price declines, Yuan Zheng, a precious metals researcher at Galaxy Futures, told the reporter that the main reasons are twofold: first, the Middle East situation has driven up oil prices, triggering expectations of interest rate hikes, and the US dollar index, especially in Japan and Europe, is more affected by crude oil shocks, increasing demand for USD to buy oil, which strengthens the dollar and suppresses precious metals; second, speculative long positions in precious metals were extremely crowded earlier, and liquidity shortages have caused panic selling and stampedes.

Changing Safe-Haven Logic?

Industry experts: More related to short-term trading shifts

Despite ongoing global turmoil, traditional safe-haven assets like gold are not rising but falling.

Yuan Zheng explained that the long-term upward logic of gold has shifted from its traditional “hedge” function to a deeper “restructuring of monetary credit,” mainly reflected in three aspects:

1. De-dollarization and central bank gold purchases: This is the strongest support in the medium to long term. As geopolitical risks normalize, non-US central banks (especially emerging markets) continue to increase gold holdings to avoid sanctions and enhance financial security. Although recent gold purchases have slowed, this strategic trend is far from over.

2. Weakening of US dollar credibility: The US fiscal deficit remains high, and the weakening of the technological support in the “three pillars” of the dollar erodes its credibility. Gold, as an asset not constrained by a single sovereign’s credit, is being re-priced.

3. Hedge against stagflation and systemic risks: In the face of potential “high inflation and low growth,” gold’s anti-inflation properties will be fully utilized. It is also a tool to hedge against “collapse of the international order” and “sovereign credit currency risks.”

“Although recent gold prices have experienced significant corrections, overall, the long-term upward logic has not changed markedly. The current decline is more about shifting short-term trading strategies, with the long-term fundamentals temporarily suppressed,” Yuan Zheng said.

Zhou Puhan, an analyst at Huafu Securities, stated that the strengthening oil prices and rising inflation expectations are transmitting to liquidity and risk appetite. During this period of conflict, USD and cash may better meet safe-haven needs. This week, market expectations for Fed rate cuts have weakened, with US February PPI rising more than expected, and Fed Chair Powell adopting a hawkish stance, even hinting at rate hikes. Under the environment of changing real interest rate expectations and tightening liquidity, gold faces significant pressure.

“After liquidity shocks, the long-term support for gold still exists. On one hand, central bank gold purchases provide solid support for prices. On the other hand, if the war persists, it will increase US military spending and fiscal burdens, depleting US dollar credibility and promoting de-dollarization,” Zhou Puhan concluded.