Gold prices plunge, Lao Pu Gold faces a "stress test"

Written by | Leopard Changes, Zhan Fangge

Edited by | Xing Yun

“How come the inventory is so complete?” Xiao Zhang exclaimed.

At the beginning of June this year, she discovered that at the Lao Pu Gold counter in Beijing SKP, the most famous and often out-of-stock product—the Climbing Vine Gourd, both small and medium sizes—were actually available. At the end of February this year, the scenes of daigou and scalpers rushing to buy were still fresh in her mind, but now, as the gold price plummeted, Lao Pu Gold became deserted.

When it was lively, everyone believed in Lao Pu's "Chinese luxury" story: fixed price, no hedging, over 40% gross margin, all benchmarked against overseas luxury brands. Now, gold prices have dropped, counters are fully stocked, and those who lined up for Lao Pu for the past three years have dispersed.

How many people in the past customers truly recognized Lao Pu's luxury logic, and how many bought in simply because they believed "gold prices will only rise, Lao Pu will only get more expensive"? Or perhaps, the latter was just the dividend of the bullish cycle, not true product strength.

When the tide recedes, perhaps the real situation becomes clearer.

01 With Gold Prices Falling, Can the Luxury Narrative Still Hold Up?

Xiao Zhang had been tempted by Lao Pu Gold for two years, finally decided to walk into a physical store, only to find there were no queues, no frantic buying, and no shortages—quite unlike the scenes previously described by her friends. There were more salespeople than customers in the store, and you could try on everything from rings worth tens of thousands to gold bowls worth over 500,000 RMB.

"This really does feel a bit like a luxury store," she said.

In the past few years, the keyword most tied to Lao Pu Gold was "rush buying."

The international spot gold price went from $2,000/ounce at the beginning of 2024, climbed to over $5,000/ounce at the start of 2026. The Shanghai Gold Exchange's benchmark price soared from about 480 RMB/gram to 1,200 RMB/gram, also boosting Lao Pu Gold, which positioned itself as "Chinese luxury."

During sale events at malls like SKP, or on the eve of Lao Pu Gold's official price increases, daigou (overseas buyers) would line up overnight. Even though SKP opens at 10 a.m., by 4 or 5 a.m., a dozen people could already be queuing outside, some needing cigarettes to stay awake; larger daigou operations would even hire students to stand in line for them. All these efforts were just to rush in and buy Lao Pu products at first light.

The sudden change from booming to deserted happened abruptly.

On February 28, 2026, Lao Pu Gold made its first price adjustment of the year; media reported price hikes of 20% to 30% on popular products. At that time, gold was also at its historical high, and everyone believed prices would keep going up, so the more they stocked up, the higher the potential future gains. Both customers and daigou accumulated large stockpiles. Some daigou reportedly saw peers stockpiling over a million RMB in products.

In early March, gold prices plummeted. On June 26, spot gold in London dipped below $4,000/ounce intraday. The Shanghai Gold Exchange benchmark closed below 880 RMB/gram as well.

Domestic gold jewelry prices also dropped from around 1,600 RMB/gram in February to 1,200 RMB/gram.

Thus, Lao Pu Gold, which had just raised prices in February, found itself in an awkward position.

Lao Pu Gold has always priced its products according to luxury logic, and in terms of per-gram cost, its products are at a high level. For example, a small Climbing Vine Gourd in the official Tmall flagship store, weighing 21.39 grams, is priced at 41,900 RMB, translating to 1,958.86 RMB per gram.

Although discounts like "100 RMB off per 1,000 RMB" are offered during Dragon Boat Festival and other holidays, the huge gap in gold prices now makes consumers feel it’s just not worth it.

Product premium gets magnified when gold prices recede, becoming a pressure point for Lao Pu Gold.

However, Lao Pu Gold is also constantly adjusting. On one hand, they’re accelerating product iteration—launching eight new series from January to May this year, incorporating more gemstones and design elements. On the other, they’re enhancing service and customer benefits to improve conversion.

With gold prices continuing to fluctuate downward, Lao Pu Gold has entered a verification period: it's not just about gold jewelry anymore, but testing whether the "luxury" route really works.

02 No Hedging—Does That Work?

Lao Pu Gold has always reiterated its ambition to be "China’s luxury brand," not just through marketing to justify high prices, but also by trying to completely decouple pricing from costs—the most representative move being "no hedging."

Traditional gold shops rely on rapid turnover, old gold recycling, and frequent price adjustments tied to real-time gold prices to minimize losses from gold price fluctuations.

But this rarely works for market-oriented brands and listed companies like Chow Tai Fook and Chow Sang Sang. Their business models require maintaining a significant inventory of gold, which includes not just raw materials but also products and finished items denominated in gold. When prices fall, this inventory faces depreciation, impacting profits.

To mitigate such risks, brands like Chow Tai Fook, Chow Sang Sang, and Chow Tai Seng have all tried out gold leasing (gold lending) plus gold forwards and various other methods.

The core logic of gold leasing is: borrow gold, sell the spot gold, and buy it back to return to the bank in the future. This means that if the gold price drops, while the company’s inventory loses value, it’s cheaper to buy back the gold for the bank; if the price rises, the opposite happens.

For example, Chow Tai Fook stated in its 2026 annual report, "We use gold lending (gold short position) for economic hedging purposes, to reduce the financial impact on gold inventories (gold long position) from gold price fluctuations." In fiscal 2026, the soaring gold price resulted in a fair value loss of HKD 6.28 billion on gold lending.

Gold forward contracts lock in the amount and price of gold to be repaid at maturity. Together, these significantly reduce risks from gold price volatility.

For example, as per Chow Tai Seng’s announcement, in 2026, the maximum amount of gold leasing transactions does not exceed 80% of the company’s total gold inventory, and not more than 4,000 kg. In other words, up to 80% of the gold inventory can be hedged this way to balance price swings.

But Lao Pu Gold is an exception.

Multiple media outlets have reported that at Lao Pu Gold’s 2025 earnings meeting, founder Xu Gaoming stated the company doesn't hedge. He believed that gold prices would not continue a long-term slump this year, and even if they adjusted in the short term, Lao Pu Gold could handle it.

Xu Gaoming’s confidence comes from two places: first, Lao Pu Gold's premium is high enough—over a 40% gross margin, which is the thickest buffer against gold price volatility. Second, not hedging requires very careful management of raw material procurement pace.

According to financial reports, Lao Pu Gold procures gold in tranches and on a timely basis, but when selling, they apply overall weighted unit costs. As gold purchase prices keep rising, the average cost also increases incrementally.

Therefore, if the weighted cost is pushed up by more expensive new gold but selling prices don't keep pace, the gap between selling price and cost narrows, impacting gross margin.

In Q2 2026, Lao Pu faced an extreme situation: in March 2026, the gold price plummeted, with per gram price dropping over 300 RMB. Lao Pu, which usually only raises prices twice or so a year, now had no ground to raise prices. In Q1 2026, it had also acquired a significant volume of high-priced gold.

All things considered, Lao Pu is betting more on brand premium, fixed pricing, a high-end client base, and product design. What it is really hedging isn’t the book value of gold, but consumer perception.

Financial hedging can offset inventory price risks, but not the psychological risk that consumers feel they "overpaid." Lao Pu really needs to prove that even if gold prices drop and traditional jewelry gets cheaper, its core clientele will still pay for craftsmanship, design, exclusive stores, and brand premium.

However, even with gold prices dropping, JPMorgan remains highly optimistic about Lao Pu’s prospects. In a research report released this June, JPMorgan pointed out that even under extreme stress testing, if Lao Pu Gold’s same-store sales fell 20%, its net profit could still double (98%) in the first half of the year.

03 Can Sales Weather the Storm?

According to media reports, Lao Pu Gold founder Xu Gaoming said at the 2025 earnings meeting, “Hedging means giving up on brand strategy.”

Perhaps the management believes that if they hedge, it means acknowledging Lao Pu Gold is just an ordinary gold store affected by gold price volatility, not a "Chinese luxury brand." After all, no luxury brand would lower bag prices just because the price of leather drops.

At the end of March, during Lao Pu Gold's 2025 annual report analysis, the company reaffirmed its price increase strategy. Regardless of the gold price cycle, Lao Pu focuses on whether it can get consumers to pay for the material, emotional, and cultural value embodied in its products, thus breaking away from being bound to gold price fluctuations alone.

With such a tough strategy decoupling from gold prices, the real concern may well be sales volume.

The World Gold Council's "Global Gold Demand Trends Report" indicated that in Q1 2026, although the value of gold jewelry demand surged due to record high gold prices, when measured in pure gold weight, jewelry consumption fell sharply—to its lowest level since Q2 2020 at 300 tons. Investment demand is replacing jewelry demand.

As a jewelry company, Lao Pu Gold can hardly remain immune: the tradition in China is to buy gold on the rise and not on the fall. The deserted Lao Pu Gold stores attest to this.

On the other hand, although Lao Pu as a brand tries to decouple from gold price, the secondary market feedback is honest.

During the gold price upcycle, Lao Pu Gold developed a secondary market similar to luxury goods, with buyback prices holding at 70 to 80% of retail. However, this summer, hot new items like the Climbing Vine Gourd fell to 60% of the retail price on the resale market.

According to "Leopard Changes," this is related to daigou stockpiling prior to Lao Pu’s price hikes this year, spurred by the gold price surge at the start of the year. Many people maxed out their credit cards to build up inventory and now, desperate to get their money back, must sell at discount—sometimes even at half the current counter price if they need cash urgently.

Now, Lao Pu Gold stands at a critical crossroads. Gold prices are still falling. If it can hold out—no price cuts, no major discounts, and return its resale market to 70-80% of retail—then the "Chinese luxury" narrative will pass yet another stress test.

If it can't, the cost is more than a few quarters of profit volatility. Xu Gaoming's remark “Hedging means giving up on brand strategy” is, in essence, a financial decision wrapped as a brand declaration—if it’s forced to drop prices or give bigger discounts, it’s admitting “Lao Pu is, after all, just a gold shop pricing per gram.”

Luxury brands take centuries to build; they survive not on a round or two of rising prices, but on not letting channels and secondary markets bite back during price downturns.

The road ahead for Lao Pu Gold is still long.

　　

Editor: Zhu Henan