In late June, the price of gold has fallen below 1,200 U.S. dollars per ounce; however, it rebounded slightly recently.
At present, financial market fluctuates by the influence of domestic and international economic situation. Under this circumstance, the price of gold, stocks and currencies goes up and down and thus, the risk of financial product is worth more attention. Here is a series of reports covering the ways and skills of personal wealth management. Through professional suggestions and analysis, we hope it can enlighten a large number of investors.
Gold prices plunged since April. However, instead of rebounding steadily, the gold price keeps decreasing in June. Why gold, which is always seen as a prudent investment product, experienced drastic price fluctuations? Will the 12-year-long bull market of gold be over? How to deal with it for investors?
"Chinese housewives"
These "Chinese housewives" - called "Da Ma" in Chinese - are mostly in fifties. They gained fame in the financial world when they "beat" mighty Wall Street moguls by purchasing a spectacular amount of 300 tons of gold jewelry, coins and bars in last quarter. Aunt Sun is one of them.
Last year, Aunt Sun got retired. Compared to the instability of stocks and funds, Aunt Sun chose gold investment finally.
Like most of Chinese housewives, Aunt Sun bought 800 grams of paper gold at the price of 280 yuan per gram in mid April, when international gold price declined 15 percent within two days. After that, the paper gold price rose to 290 yuan per gram and it brought about a profit of 8,000 yuan to Aunt Sun within a few days.
However, as time went by, Aunt Sun found herself trapped in a dilemma. In May, the gold price continued falling. What's worse, on June 20, the international gold price declined more than 6 percent to 250yuanper gram. At that time, Aunt Sun had lost about 20,000 yuan.
Like Aunt Sun, lacking of considering the risk, many people bought gold a hedging tool for preserving monetary value. Nowadays, with the slump of gold price, gold jewelry and bullion prices go down in domestic market at the same time. It's reported that pure gold price has dropped to 330 yuan per gram in Cai Bai Mall.
Consumers waited in a line to consult at a gold jewelry shop in Guo Hua Mall, Beijing. However, the amount of consumers who really bought gold is much less than in April. What's more, generally speaking, consumers prefer gold jewelry to gold bars.
Gold shop owner
In fact, many investors like "Chinese housewives" are not the only victims of gold price's decline, even some operators in gold market cannot avoid the doom.
Mr. Zhang, an owner of a gold shop in Haidian, Beijing, runs gold repo operations, in addition to normal gold sales.
He recycles different styles of gold which meet professional certifications at the price that according to Shanghai Gold Exchange. He sells gold to processing enterprises in Guangdong and normally, he can earn a profit of 10-20 yuan per gram. Sometimes, when gold price rises, Zhang usually hoards gold for one to two months before selling it. More and more consumers would like to change gold for cash through this way. As a result, earnings from gold recycling even exceeds normal selling.
Zhang said that even though he has run the operation for more than 10 years, he did not meet such a market this year. Formerly, he used to add the supply of gold or improve the recycling gold price after a big fall of gold price, because he was sure that the price would go up within a month. Unfortunately, this time, things went opposite.
After the slump of gold price in April, many processing enterprises as well as consumers were eager for hoarding gold. Obviously, in seller market, Zhang did not sell it. Instead, he even bought more from consumers' hands. Nevertheless, the gold price did not rise gradually as before. Zhang therefore lost money inevitably.
Since experiencing the thrilling recent months, Zhang dare not easily start his former recycling career. It's dangerous for investors to be held up by gold and it is detrimental for liquidity of cash in the market.
Financial experts: gold price can hardly rise in the five years to come
A famous expert, deputy manager of Hua Xia Bank, Huang Jinlao explained that generally speaking, gold is a good choice for investment. Gold usually will not get depreciated as much as currency will when meeting social unrest and depression. In 2008, the gold price soared after the international financial crisis; in 2011, the golf price jumped again with the global regional instability; while since 2012, stability returned after the bust, the drop of gold price was inevitable.
He also said that there will be a high risk for the elderly to invest in gold. It's necessary for investors to have a comprehensive understanding of global economic, financial trend, regional situation, and dollar rate movements, while obviously; it is beyond the elderly's ability. Huang also asserted the constant increase of gold price would not reappear like before in the five years to come.
A macroeconomic analyst of Hua Xia Bank, Zhao Yurui emphasized that risk-free interest is impossible. Investors should be careful when buying financial investment products, including not only gold, but also stocks and funds. Zhao argued that "Chinese housewives" swarming into gold stores in April across China seems to be a more mature investment behavior compared to the situation before: they always bought and sold blindly. In conclusion, investors can still participate in gold investment as long as they change initial concept that gold maintains valuable all the time.
A senior metals analyst of Xing Ye Bank, Jiang Shu said that a short-term fluctuation of gold price is associated with the inburst of capital into gold market. Since 2009, the demand for hoarding and investment intentions of gold accounted for 3040 percent of the whole gold demand has also contributed to the short-term fluctuation of gold prices.
Jiang also said that it's important for ordinary investors to abandon the unilateral thoughts formed in bull market over the past 12 years. Buying gold at a lower price and then hoard it seems to be hard to achieve profits as expected. What's more, under current situations, turning to short sell of gold may be an ideal choice.
