Private sector demand for gold in China is poised to increase by 25% from the current level of 1 100 t/y to at least 1 350 t/y by 2017, the World Gold Council (WGC) said on Tuesday.
Last year saw China become the world’s largest gold market and, although 2014 Chinese gold demand is set for consolidation, the succeeding years are expected to see ongoing strong growth, driven by rising real incomes, a deepening pool of private savings and rapid urbanisation across China.
In mining, China has gone from being a minor producer to the world’s largest source of mined gold, with production doubling from 217 t to 437 t in the past ten year’s production.
In its report entitled China’s gold market: progress and prospects, the WGC examines the factors that have taken the country to the number-one gold position, both in production and consumption, in the wake of the liberalisation of China’s gold market in the late 1990s and the subsequent offering of gold bullion products by the country’s commercial banks from 2004.
The report also analyses why the market will continue to expand, irrespective of short-term blips in the economy, and calculates that the next six years will see China’s middle class grow by 200-million people to 500-million people, compared with the population of the US of 319-million people.
“We have witnessed astonishing increases in demand for gold from consumers across the country,” said WCG Far East MD Albert Cheng, adding that there was significant room for the market to grow even further in the light of China’s deep-seated cultural affinity for gold, increasing affluence and a supportive government.
China is now seen to be at the centre of the global gold ecosystem and, while the country faces important challenges as it seeks to sustain economic growth and liberalise its financial system, buildup in personal incomes and the public’s pool of savings should support a medium-term increase in the demand for gold, in both jewellery and investment.
The report finds that China’s continuing urbanisation has resulted in China now having 170 cities with more than one-million inhabitants and that demand for gold among those with a greater disposable income and limited investment opportunities will continue to grow.
Chinese savings levels remain high with an estimated US$7,5-trillion in Chinese bank accounts, but household allocations of $300-billion are still moderate given that gold is seen as a stable, accessible investment by consumers, particularly in the light of rising house prices and a lack of alternative savings options.
Chinese investors have a preference for physical gold over paper, with investment focused on small bars, gift bars or gold accumulation plans known as Gaps.
New gold investment products mean that medium term demand for bars and coins could reach 500 t by 2017, a rise of close to 25% above its record level last year.
China has become the world’s number one jewellery market, nearly trebling in size over the past decade.
At 669 t in 2013, jewellery accounts for 30% of global jewellery demand. Estimates suggest that demand will continue to grow and reach 780 t by 2017.
There are now more than 100 000 retail outlets selling 24 ct gold and thousands of manufacturers nationwide.
Consumer sentiment towards gold is unwavering and although 40% of jewellery consumption relates to weddings, the appetite for gold in China goes beyond occasions and gift giving.
Eighty per cent of consumers surveyed by the WGC planned to maintain or increase their spending on 24 ct gold jewellery over the next 12 months in the belief that gold will hold its long-term value and because they expect to have a higher level of disposable income.
Chinese electronics demand for gold will see small gains in the next four years.
Industrial demand has risen from 16 t in 2003 to 66 t in 2013 and China is also the leading market for gold-linked patents such as the use of nanogold in healthcare.
Official gold holdings in China totalled 1 054 t at the end of 2013 making the country the world’s sixth largest holder of bullion.
Based on this declared stock, gold represents 1% of China’s total official reserves, down from a peak of almost 2% in 2012, owing to the rapid growth of the country’s foreign exchange holdings, which reached US$3,8-trillion at the end of 2013. Speculation continues as to whether the Chinese government has increased its gold holdings.