The encyclopedia · Finance & Accounting · Financial decision · 2024-2025
Luk Fook hedged against falling gold — then gold kept rising
Luk Fook's gold hedges were built to protect margins if prices fell. Gold surged instead in FY2025, and the hedges alone cost HK$492 million.
Luk Fook Group · 2025-06-27
What happened
Like other Hong Kong jewellers, Luk Fook uses gold-linked hedging instruments to smooth out swings in bullion prices between buying stock and selling it as finished jewellery. The hedges are built to pay off if gold falls, protecting margins on inventory already bought.
In the year to March 2025, gold did the opposite: prices surged, and Luk Fook's hedging positions moved against the company instead of for it. The hedging loss alone widened to HK$492 million, up from a much smaller loss the year before.
Combined with revenue falling 12.9% to HK$13.341 billion as high gold prices also discouraged buyers, group net profit dropped 37.8% to HK$1.099 billion. The company cut its final dividend by 14% and disclosed the results in a June 2025 profit warning.
Why it happened
- A hedge designed for one direction of price movement becomes a second source of loss the moment the market moves the other way — it does not sit neutral, it actively costs money
- Sizing a hedge for a falling-price scenario left the company doubly exposed when gold rose: weaker sales from priced-out buyers, plus losses on the hedge meant to offset that risk
- A jeweller's core business already carries gold-price risk; layering a directional hedge on top concentrates that same risk rather than spreading it
The lesson
A hedge only protects against the risk it was built for — bet on the wrong direction and it stops being insurance and becomes a second loss stacked on the first.
Sources
- Oriental Daily — Luk Fook FY2025 net profit down 37.8%, gold hedging loss HK$492M
- Luk Fook Group — Official FY2025 annual results announcement
spotted an error? The club wants to know.
More like this
Larry Jewelry faked HK$130M of trades — its auditor refused to sign, and it was delisted
Peace Mark grew to 10,000 employees selling watches — then debt killed it in weeks
Country Garden funded its scale entirely with debt and presale cash — then both dried up
Somewhere, someone solved the problem this company failed at. 2nd Opinion →
Comments · 0
Sign in to join the comments.