(Yicai) June 9 -- Chinese gold jewelry companies' stocks finished in mixed territory after selling off yesterday in the wake of a sharp pullback in bullion that was triggered by robust US labor data reviving bets of a rate hike in the world’s biggest economy.

Sichuan Gold [SHE: 001337] closed 5.6 percent lower at CNY41.23 (USD6.08) in Shenzhen today after losing 8.6 percent yesterday. Following a 7.1 percent slump the day before, Shanjin International Gold [SHE: 000975] gained 2.2 percent today to end at CNY20.74.

In Hong Kong, GT Gold Holdings [HKG: 8299] finished flat at 29 Hong Kong cents (4 US cents), Zijin Gold International [HKG: 2259] rose 1.4 percent to HKD108.50 (USD13.84), and Laopu Gold [HKG: 6181] shed 3.5 percent to HKD456.40. They sank 10.8 percent, 8.8 percent, and 5.4 percent, respectively, yesterday.

US May non-farm payrolls for May came in far above expectations, driving up market anticipation of a rate increase by the Federal Reserve this year. Gold prices and US interest rates generally move in opposite directions, sharing an inverse relationship driven by opportunity cost. Bullion fell as low as USD4,268 per troy ounce yesterday, USD1,330 below this year’s USD5,598 record high.

A confluence of multiple negative factors has triggered the decline in gold prices, with the key driver -- unexpectedly strong US labor data -- bolstering expectations of a US rate hike, said Wu Zewei, special researcher at Jiangsu Su Merchants Bank. Anticipation of a rate cut has largely receded, while the probability of a hike has risen significantly, strengthening the US dollar and US Treasury yields and sharply increasing the opportunity cost of holding gold, he said.

Chow Sang Sang, Lao Miao Gold, Lao Feng Xiang, and other Chinese jewelers have slashed gold jewelry prices to around CNY1,300 (USD191) per gram from about CNY1,700. However, an anticipated surge in demand did not materialize, with store traffic remaining sparse.

China consumed 682.73 tons of the yellow metal in the first three quarters of last year, down 8 percent from a year earlier, according to data from the China Gold Association. That of gold jewelry plunged 33 percent to 270.04 tons, while that of gold bars and coins rose 25 percent to 352.116 tons.

For the first quarter of this year, gold consumption climbed 4.4 percent to 303.29 tons from a year ago, but that of gold jewelry tumbled 37 percent to only 84.62 tons, while that of gold bars and coins surged 46 percent to 202.06 tons. This highlights that even before the recent pullback, high gold prices had exerted long-term pressure on gold jewelry buying. 

This structural divergence is not a short-term fluctuation but a long-term trend, Wang Lixin, chief executive officer of WGC China, has said. As consumers reassess the value of gold, the boundaries between demand for investment and jewelry are becoming increasingly distinct, Wang noted.

Increasing trade around rate hikes, together with repeated geopolitical signals, has put pressure on precious metals, according to Wang Yanqing, chief precious metals analyst at Citic Securities Futures. Combined with liquidity concerns triggered by pullbacks in US, Japanese, and South Korean equity markets, these factors together drove the pronounced decline in precious metals over the weekend, Wang pointed out.

The US will release May’s core consumer price index this week, while the impact of the US-Iran war on inflation and the Fed's decisions will be further assessed. 

If inflation conditions are brought under control, it may alleviate some of the pressure from rate hike trades, Wang said, but if inflation remains high, the selloff will likely deepen.

Editor: Martin Kadiev