China's gold consumption pattern shifted significantly in the first half of 2024, with overall demand dropping as record-high gold prices deterred jewelry buyers even as purchases of gold bars and coins showed an uptick.

As gold prices touched historic highs during the January-June period, sales of gold jewelry as well as gold bars and coins showed a divergent trend, with the consumption of gold jewelry, which has a higher premium, significantly declining, while those of gold bars and coins, which have relatively lower premiums, surging, according to the China Gold Association.

National gold consumption in China dropped 5.61 percent year-on-year during the first half of 2024 to 523.75 metric tons, with that for gold jewelry falling 26.68 percent year-on-year to 270.02 tons and purchases of gold bars and coins increasing by 46.02 percent to 213.64 tons, the association said on Sunday.

High and volatile gold prices have increased operational risks for gold processing and sales companies, leading to a reduction in inventory by wholesale and retail businesses, and a significant decrease in processing volume for jewelry manufacturing companies, it said.

Gold was one of the best performing assets through the first half of 2024. The precious metal was up 12 percent in US dollar terms through the first half of the year.

According to the World Gold Council, gold's strong performance despite the absence of strong Western flows suggests that, unlike previous periods when gold set record highs, the market is still not saturated and could see another rally.

Zhao Xiangbin, chief strategist at Beijing Gold and Forex Fortune Investment Management, said the trend may continue if gold prices remain elevated.

The sharp increase in gold prices has reshaped consumer behavior. While luxury jewelry has become less attractive due to its high premium, the appeal of gold bars and coins as a stable investment has grown, he said.

The soaring gold prices have led to a substantial decline in gold jewelry consumption, leading consumers, wary of the inflated costs, to curtail spending on luxury gold items, he said. In contrast, demand for gold bars and coins, seen as safer investment assets with lower premiums, has surged as investors sought to hedge against economic uncertainty, he added.

According to the association, the volatility in gold prices has also impacted gold processing and sales companies.

Wholesale and retail enterprises have reduced their inventory purchases, and jewelry processing companies have seen a significant drop in their processing volumes, it said.