Goldman Sachs has adjusted its outlook on China's jewelry sector following a significant retreat in gold prices. After peaking at $5,595 per ounce in January, gold has since dropped to around $4,041 per ounce. The investment bank warns that this decline could lead to earnings downside risks for companies in the sector across fiscal years 2027 and potentially 2028 if prices remain at current levels.
The firm revised its earnings forecasts, now ranging from 0% to 38% below consensus for 2026 and 2027. Key tailwinds that previously supported sector profitability, such as inventory gains and higher margins from fixed-price products, are expected to weaken in the upcoming earnings cycle.
Goldman Sachs provided specific updates on several companies. It upgraded Chow Tai Fook from Neutral to Buy with a target price of HK$13.0, citing its defensive earnings profile and hedging protection. The firm maintained a Buy rating on Laopu, despite expecting significant earnings cuts, highlighting its structural upside and potential for a gold price rebound. Conversely, Luk Fook was downgraded from Neutral to Sell with a target price of HK$17.9, due to expected steep earnings headwinds. Mingr retained a Sell rating amid soft end-market demand and muted gold pricing.
While upside risk remains if gold prices recover, with a bull case scenario projecting $5,325 per ounce by the fourth quarter of 2027, the current environment presents challenges for most players in the sector.