Summary of Key Points
The U.S. non-farm payroll data for May far exceeded expectations, sparking concerns about the Federal Reserve's potential interest rate hikes this year. This led to a significant drop in international gold prices, causing a collective collapse in the gold sectors of both A-share and Hong Kong stock markets, as well as in gold jewelry retail stocks. Domestic gold jewelry prices also fell (by 23% from their annual highs, which is equivalent to a 76% discount). However, consumers are hesitant to buy due to fear of buying at a high price point and are therefore holding off on making purchases. There is a clear divergence in the structure of gold consumption: demand for investment-grade gold bars and coins has surged, while demand for jewelry has continued to plummet. In the short term, gold prices are pressured by Fed policies, but in the long run, they are supported by global central bank purchases and geopolitical risks.
1. Non-farm Data “Punctures” the Gold Price Bubble – Interest Rate Hikes as the Main Reason for the Drop
The U.S. non-farm payroll increased by 172,000 jobs in May, nearly doubling the market's forecast of 85,000 jobs. This indicates that the U.S. economy is still strong, giving the Federal Reserve reason to continue raising interest rates (interest rate hikes are intended to curb inflation, and a strong economy provides room for such moves).
Interest rate hikes are negative for gold: gold does not generate interest, and when interest rates rise, the returns from depositing money in banks or buying U.S. bonds become higher, increasing the “opportunity cost” of holding gold. As a result, markets sold off gold en masse, causing international gold prices to drop from an annual high of $5,598 per ounce to $4,268 per ounce, a decrease of $1,330. Gold stocks such as Sichuan Gold in the A-share market and Datang Gold in the Hong Kong stock market also tumbled, with some losing more than 10%.
2. Gold Jewelry at a Discount, but Consumers Are Shy to Buy
Previously, as gold prices rose, consumers bought more (for example, in January this year, domestic gold jewelry was sold for 1,700 yuan per gram, and buyers were eager to purchase). Now that prices have dropped to 1,300 yuan per gram (a 76% discount), demand has plummeted.
The reason is simple: consumers are afraid of buying at a high price point. Recent fluctuations in gold prices have been significant, and stores frequently adjust their prices, leaving consumers unsure whether prices will continue to fall. If they buy now and prices drop further in a few days, they could end up losing money. Therefore, salespeople say that customers are waiting and no one is rushing to make purchases. Although many people pass by gold counters, few stop to inquire or place orders.
3. A Polarized Gold Consumption Landscape – Investment Demand Surpasses Jewelry Demand
Gold consumption has split into two distinct trends:
- Jewelry Demand Slumps: Gold jewelry sales decreased by 32.5% in the first three quarters of 2025 and plummeted by another 37.1% in the first quarter of 2026.
- Investment Demand Soars: Sales of gold bars and coins increased by 24.55% for the entire year of 2025 and surged by 46.4% in the first quarter of 2026, exceeding jewelry demand for the first time (504 tons of gold bars and coins were sold in 2025 compared to only 363 tons of jewelry).
This change reflects a shift in consumer perception of gold: previously, people bought gold for decoration, but now they see it more as an investment opportunity. With high prices, they prefer to buy gold bars that retain their value rather than expensive and impractical jewelry.
4. What Will Happen to Gold Prices in the Future?
- Short Term: Gold prices will continue to be under pressure due to ongoing concerns about Fed interest rate hikes. If employment and inflation data remain strong, further rate increases are likely, leading to further price declines. Institutions have already lowered their forecasts; Citibank expects gold prices to drop to around $4,300 per ounce in the coming months, while JPMorgan Chase has revised its 2026 average price forecast from $5,708 to $5,243 per ounce.
- Long Term: There is support for gold prices due to ongoing purchases by central banks around the world (such as China and Russia) and geopolitical risks that could enhance gold's status as a safe-haven asset. Additionally, the potential weakening of the U.S. dollar’s credibility could also support gold prices.
For individual consumers, the question is no longer whether to buy gold but when to buy. They need to wait for clear signals from the Federal Reserve (such as a slowdown in inflation or the cessation of interest rate hikes) before deciding if now is a good time to buy.
Conclusion
The recent sharp drop in gold prices is the result of a combination of factors, including expectations of interest rate hikes, liquidity concerns, and recurring geopolitical tensions. Consumers are cautious, and there is a clear divergence in consumption patterns. In the short term, it’s best to wait for clearer signals before making a move. In the long run, gold remains an asset worth watching.