Factors Likely To Hinder Gold Industry Growth

Though the market for gold will remain strong in the years to come given the demand for jewelry, bars and coins as well as its safe-haven appeal, it has a number of threats lurking. Below, we have discussed some of the key challenges and what investors in the sector should be wary of in the coming months and years.

For the second quarter, China’s economy grew by 1.7% in seasonally adjusted terms. It was in line with expectations but higher than 1.3% increase reported in the March quarter.

The International Monetary Fund’s (IMF) forecast for growth in China is pegged at 6.7% for 2017. As per the IMF, a faster slowdown in China could have a serious impact on trade, commodity prices and investor confidence, and lead to a more generalized slowdown in the global economy. Even though the recent upbeat GDP figures raise hope, it remains to be seen whether it can be sustained.

While rebalancing progresses, the Chinese economy continues to slow down. In China, policymakers continue to shift the economy away from its reliance on investment and industry toward consumption and services. This is anticipated to slow growth in the short term while building the foundations for a more sustainable long-term expansion.

The continued general economic slowdown has had a negative impact on customer sentiment. Jewelry demand in China 2016 slumped 17% due to higher gold prices. Gold jewelry demand has been negatively affected by the slowing economic environment as well as changing consumer tastes. It has been observed that the younger Chinese consumers want to spend their money on experiences rather than material goods.

Recently, a shift from pure 24k gold to lower-carat, higher-designed and higher-margin gold jewelry has been witnessed among the young customers in China. Consumers are expressing their individuality and differentiating themselves from older generations — leading to the shift from traditional plain 24k jewelry. As younger consumers continue to shy away from the traditional jewelry, higher-margin, lower-gold-content products are being developed to fill the void. Retailers and manufacturers are attempting to prosper in a competitive industry by alluring customers with new, innovative and higher-margin products.

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