Has the Surge in Gold Prices Become a "Poison"? Hong Kong-Listed Jewelry Stocks Plummet Collectively, Luk Fook Holdings' Stock Price Drops Over 14% in the Last Three Days

Recently, international gold prices have continued to attract significant market attention due to factors such as the Middle East conflict. However, as gold prices strengthen, shares of gold jewelry companies have been declining. As of press time, Luk Fook Holdings (00590.HK), Chow Tai Fook (01929.HK), and Chow Sang Sang (00116.HK) have fallen by 5.02%, 3.51%, and 3.24%, respectively.

Taking Luk Fook Holdings as an example, the company experienced a cumulative decline of 9.36% from June 17 to 18. Including its current performance, this decline has exceeded 14%.

Note: Luk Fook Holdings' performance

According to Luk Fook Holdings' recent announcement, the company expects its net profit for the fiscal year 2025 to decline by approximately 40% compared to the same period last year.

The announcement also pointed out that the profit decline was mainly due to expanded gold hedging losses caused by soaring gold prices, as well as the high base effect resulting from one-time related gains recorded last year from the acquisition of King Tai Fook Group.

Excluding the impact of gold hedging losses, the adjusted profit decline narrowed to less than 20%. After further deducting last year's one-time gains, the profit decline narrowed further to less than 10%.

The Q1 reports of other companies also reveal that gold and jewelry enterprises faced pressure on their performance in Q1.

Chow Tai Fook's retail value in Q1 this year declined by 11.6% YoY, with same-store sales in the Chinese mainland market dropping by 13.2%. China National Gold Group Corporation reported revenue of 11.003 billion yuan, a YoY decrease of 39.71%, and net profit attributable to shareholders of 135 million yuan, a YoY decrease of 62.96%. Chow Tai Seng reported revenue of 2.673 billion yuan, a YoY decrease of 47.28%, and net profit attributable to shareholders of 252 million yuan, a YoY decrease of 26.12%.

According to relevant reports, in Q1 this year, Chow Tai Fook's main brand closed a net 397 stores, bringing the total to 6,423, while Chow Tai Seng closed a net 177 stores, bringing the total to 4,831.

Why are gold stores performing poorly despite soaring gold prices?

The surge in gold prices directly drives up companies' procurement costs for raw materials, but the terminal selling price is constrained by market acceptance, making it difficult to raise prices in tandem, thereby squeezing profit margins. For example, when international gold prices rise to 560-580 yuan per gram, gold stores' retail prices need to cover costs such as processing fees, rent, and labour. However, consumer acceptance of gold jewelry priced at over 700 yuan per gram drops sharply, leading to a precipitous decline in sales volume.

Furthermore, gold jewelry is not a necessity, and consumers are sensitive to high prices. For instance, when a gold chain originally priced at 5,000 yuan rises to 6,000 yuan, purchase willingness declines. Meanwhile, consumers anticipate a gold price correction and hold onto their money, leading to a sharp short-term decline in customer traffic.

Consumers are shifting towards financial products such as bank gold bars or gold ETFs to avoid the premium at physical stores. According to relevant data, domestic gold jewelry demand in 2024 declined by 24% YoY, while demand for investment gold bars increased by 20%. Young people are more inclined to choose substitutes such as second-hand gold jewelry or K-gold, and the proportion of traditional wedding gold consumption has dropped from 52% to 37%.