Taiwan Today

Surprisingly, the hunt for gold jewelry in Taipei begins in the shabby neighborhood of Lung-shan temple. But the northern district of Wanhua was Taiwan's first commercial center and until the 1920s the city's prime merchant district. While much of the commerce continues to move east in the direction of the city's growth, many of the gold shops have chosen to remain on Hsiyuan Road, a few strides up from Taipei's oldest temple and across from a market. They occupy long, badly lit cubicles off the sidewalk, interspersed between or sharing space with dry goods stores.

Lined with scarlet velvet, their display windows and counters are packed with glinting yellow trinkets, coins, chains, figurines, and intricately carved plates. Much of the jewelry in these gold stores claim to be crafted out of 24-karat gold, with a purity of 995 to 999 percent. Shoppers would scoff at anything less. The gold trinkets are often given as presents to celebrate the birth of a child, a promotion, passing an exam, an engagement or wedding, retirement, and birthdays, holidays, and anniversaries.

About a ten-minute cab ride farther east is Hanyang Road. Here the gold shops are bigger and better-lit. But there is hardly any difference between their contents and those of the shops on Hsiyuan Road. The little animals of the Chinese zodiac system are there, and so are the golf ball and tee, the thick chains, the assortment of gold coins, and figures of the God of Longevity and Mickey Mouse.

But the shops that run down both sides of Ta-an Road, Section 1, breathe the elegance and snobbery of the boutiques in neighboring Chunghsiao East Road and Jenai Road. The footfall of two security guards echo to the end of the street. Interested shoppers get a once-over before a click signals that the door has been opened. Says Ku Tsung-tai, the owner of one of the forty shops on the street. "It rarely happens that I have a walk-in customer. Most of the time, my old customers bring in new ones."

A well-dressed, middle-aged woman walks in, friend in tow. "Ah-chi," she calls Ku by his Taiwanese name, "I've brought a new customer." The friend wants to buy some gold jewelry for her daughter who is leaving for the United States. But no purchases are made today. However, promises are exchanged: Next week, Ku will have the type of jewelry the prospective customer is looking for, and she says she will be back.

Goldsmiths supply much of the jewelry found in the gold stores. Lin Mao-sung owns a small factory which occupies the top floor of a seven-story residential building in eastern Taipei. He buys one-kilogram gold bars from a wholesaler, and does the smelting, design, molding, and polishing of the jewelry at the factory. The pieces, mostly necklaces and bracelets, are then sold to approximately a hundred jewelry stores throughout Taiwan.

"I used to have more than thirty goldsmiths here," he says. "But I have more machines now and have cut the number of workers by half." Most of the design and manufacturing of the gold jewelry is done by machine, and the workshop produces not only the more traditional 24-karat gold jewelry, but also more stylish designs. International jewelry shows and catalogues have become Lin's sources of inspiration. While he emphasizes that all his designs are original, some of the jewelry in the factory look very much like reproductions of famous designs from well-known jewelry houses.

In May 1991, the Taipei branch of the World Gold Council, an international organization that promotes gold jewelry and gold as an investment instrument, released the results of a survey of two thousand people islandwide. The survey reported among other things that 83 percent of the respondents owned gold jewelry. Eighty-six percent preferred jewelry made up of 24-karat gold, although pure gold is too soft and malleable to withstand the wear that jewelry is often subjected to. Of the 28 percent who purchased gold jewelry in the year preceding the survey, 21 percent bought it as gifts.

But the value the Chinese place on pure gold jewelry is not uncommon. While gold jewelry in developed countries such as the U.S. is viewed as a commodity, in developing countries in the Middle East and in the Indian subcontinent, gold jewelry is bought primarily for its gold content. It represents an investment and a source of currency when times are bad. Its portability and the universal acceptance of its high value make it a safe haven for wealth.

The political and economic volatility of China through the centuries has made gold jewelry popular as a method of saving for troubled times. It is a tangible asset, and can be resold, its price determined by its gold content. Thus it only seems fitting that gold has endured in Chinese minds as a symbol of prosperity, excellence, fortune, and durability. The peak months for gold jewelry sales, according to the jeweler Ku, are February—the month in which Chinese New Year often falls—and the last three months of the year, during which many couples hold their weddings.

Gold's position as a safeguard of wealth during times of political and economic uncertainty has also thrived be cause of what the Chinese now jokingly refer to as the "refugee mentality." Says Sun Tung-ping, a forty-one-year-old homemaker, "My mother went through the anti-Japanese war and the civil war in China. She always tells me to buy gold bars, because inflation will not affect their value. And I follow her advice. I buy gold bars with the money I save, and put them in a safe at the bank."

Gold bullion coins are also very popular among private buyers. The Canadian Maple Leaf and the Kangaroo Nugget from Australia have a purity of 999.9 percent, and sell remarkably well. And since bullion coins are fully backed by each state government for content and weight, they are easily resold for cash on demand at banks and jewelry stores.

Although they are hardly worth more than their gold content, commemorative coins are also treasured, especially by collectors. In 1987, the Central Bank of China issued a coin in honor of Chiang Kai-shek's one hundredth birth anniversary. More than 70 percent of the coins were sold at the then current market price of US$400 an ounce. The rest were melted. In 1991, to celebrate the eightieth anniversary of the founding of the Republic of China, the Central Bank of China issued gold bullion coins stamped with the likeness of Sun Yat-sen. The coins have a 999.9 purity, and continue to sell well.

Many companies have also been giving out gold coins. According to Ku, the jeweler, over the past ten years, a pharmaceutical company has been ordering different-sized gold coins from his store to give to drugstores that achieve high sales for the company's products. Another company, an advertising agency, rewards gold coins to employees for their many years of service. Some women like to wear gold coins as a pendant. But, says Ku, "When they want to sell them back to the jewelers, an argument is bound to arise because they are usually scratched."

Jewelry stores are the center of the gold trade in Taiwan. They sell 24-karat gold jewelry, gold coins, and a range of gold bars, down to 1 tael (or 1.2 ounces) in weight. And technically speaking, according to the rules of the Taipei Jewelers Association, they also buy back gold jewelry, bars, and coins. The gold price in the jewelry stores is based on the international gold price, with a 2 percent difference between the buy and sell rates. Transactions are done on trust, as there is no verification system to protect the consumer. Thus, a store builds its reputation by word of mouth. And much of the gold the stores sell is hoarded. For example, often the bride removes her pure gold ornaments after the wedding, and then locks them away.

In an interpellation at the Legislative Yuan last year on the opening of a gold market, Central Bank of China governor Samuel Shieh said that the gold accumulated by the private sector is estimated at 25 million ounces, and that the national treasury has a total of more than 13.5 million ounces.

The ROC government's gold policy explains why Taiwan has a huge hoard of gold. When the Nationalist government moved to Taiwan in 1949, it declared gold bars as a national mobilization commodity, the transaction, and import and export of which was strictly controlled by the government. The Central Trust of China was the sole legitimate government agency that could import gold bars. On November 1, 1986, the Ministry of Finance, in line with a financial liberalization policy, lifted the ban on the import and transaction of gold bars in the Taiwan market. Consequently, huge amounts of gold poured into Taiwan, and stayed in Taiwan because the export of gold bars remains forbidden.

Tang Meng-huei, assistant general manager of public relations at Hung Foo Bullion Co., Ltd. says: "Many foreign financial consultants have asked me how it is that the market has not exploded." Hung Foo is one of Hong Kong's major retailers of bullion coins and gold bars. Ever since it established its branch office in Taiwan, it has been lobbying for the legalization of the export of gold. Says Tang, "It is only when Taiwan allows the export of gold bars that an active and healthy gold market be established."

The Ministry of Finance has proposed lifting the ban on gold exports, thus allowing gold bars to be treated as a commodity that can be freely circulated in the market. Allowing the export of gold will no doubt have an impact on the jewelry market. Gold merchants will show more willingness to buy back gold, and gold companies will view it as an opportunity to establish their own brand names and products. Says Samuel Yang, general manager of the China Trust Precious Metals Company, "We'll do more than that. We'll expand into the international market."

The opening of a legal gold market for the trading of physical gold and futures will strengthen gold's value as an investment instrument and as a hedge against inflation. Individual gold investors, hoarders, and speculators will become a vital part of this market. And to avoid the inconvenience of the physical delivery and storage of gold bars, the Ministry of Finance is studying the option of allowing banks and securities companies to use gold certificates in their transactions with buyers and sellers. Says Peter Kurz, managing director of Baring Securities (Taiwan) Ltd., "It is a good idea for individual investors to choose gold certificates as an investment instrument. Holding physical gold is too risky. Gold certificates are cheaper and safer."

The speculative nature of gold trading might be an attraction, but for many Chinese, the habit of hoarding gold might be difficult to shake. Yet, as Ku says, jewelry stores are relying less on the sale of 24-karat gold jewelry, and are going into the market of precious stones: "Tradition says that the groom must give the bride a set of gold jewelry. But brides nowadays are much happier when they also get diamonds."