Capital Gold Group Report: World Gold Council says Chinese Gold Consumption May Double in 10 Years
SINGAPORE: Gold consumption in China may double within the next 10
years, boosting prices as supplies fail to keep pace with booming demand
from investors and the jewelry industry, the World Gold Council said.
“China has an insatiable appetite for gold, which looks likely to continue in an environment where domestic mine supply lags behind demand,” the Council said in a report today.
China’s economy grew 10.7% in the fourth quarter from a year earlier, the fastest pace in two years, after a 4 trillion yuan ($586 billion) stimulus package spurred record lending and consumption. The world’s biggest gold producer has increased reserves by 76% to 1,054 metric tons since 2003 and has the fifth-biggest holdings by country, Hu Xiaolian, deputy governor of the People’s Bank of China, said in April.
“Near-term inflationary expectations and rising income levels are likely to support the investment case for gold as an asset class, especially given that Chinese consumers are high savers and are looking to gold to protect their wealth,” the council’s report said. “Jewelry and investment growth are expected to be the chief drivers of demand.”
Bullion prices have gained 21% in the past year as the global recession spurred demand for haven assets and the dollar weakened 5% against six major currencies. Gold for immediate delivery dropped 0.3% to $1,104.55 an ounce at 9:17 a.m. in Singapore.
‘Snowball Effect’
“Supply issues such as higher mine development costs, rising input costs and potential threats relating to supply disruption, tougher safety regulations and depleting ore bodies could put a much higher floor under the gold price,” the council said in the report.
Demand in China from investors and the jewelry industry, the two largest buyers in the country, reached a combined 423 tons in 2009, while domestic mine supply was 314 tons, according to World Gold Council data.
The shortfall will create a “snowball effect” as the country’s production may not keep pace with the annual leap in consumption, the report said. China’s gold output rose 8% a year from 2006 to 2009, it said.
If gold jewelry buying in China reaches the same per capita rate as India, Hong Kong or Saudi Arabia, the nation’s annual demand could increase by at least 100 tons to as much as 4,000 tons, the Council said.
Gold accounts for 1.6% of The People’s Bank of China’s $2.4 trillion total reserves, according to the report. If the bank raised its gold holdings to the peak of 2.2% reached in the fourth quarter of 2002, the “incremental demand would amount to a further 400 tons at the current gold price,” the report said.
“China has an insatiable appetite for gold, which looks likely to continue in an environment where domestic mine supply lags behind demand,” the Council said in a report today.
China’s economy grew 10.7% in the fourth quarter from a year earlier, the fastest pace in two years, after a 4 trillion yuan ($586 billion) stimulus package spurred record lending and consumption. The world’s biggest gold producer has increased reserves by 76% to 1,054 metric tons since 2003 and has the fifth-biggest holdings by country, Hu Xiaolian, deputy governor of the People’s Bank of China, said in April.
“Near-term inflationary expectations and rising income levels are likely to support the investment case for gold as an asset class, especially given that Chinese consumers are high savers and are looking to gold to protect their wealth,” the council’s report said. “Jewelry and investment growth are expected to be the chief drivers of demand.”
Bullion prices have gained 21% in the past year as the global recession spurred demand for haven assets and the dollar weakened 5% against six major currencies. Gold for immediate delivery dropped 0.3% to $1,104.55 an ounce at 9:17 a.m. in Singapore.
‘Snowball Effect’
“Supply issues such as higher mine development costs, rising input costs and potential threats relating to supply disruption, tougher safety regulations and depleting ore bodies could put a much higher floor under the gold price,” the council said in the report.
Demand in China from investors and the jewelry industry, the two largest buyers in the country, reached a combined 423 tons in 2009, while domestic mine supply was 314 tons, according to World Gold Council data.
The shortfall will create a “snowball effect” as the country’s production may not keep pace with the annual leap in consumption, the report said. China’s gold output rose 8% a year from 2006 to 2009, it said.
If gold jewelry buying in China reaches the same per capita rate as India, Hong Kong or Saudi Arabia, the nation’s annual demand could increase by at least 100 tons to as much as 4,000 tons, the Council said.
Gold accounts for 1.6% of The People’s Bank of China’s $2.4 trillion total reserves, according to the report. If the bank raised its gold holdings to the peak of 2.2% reached in the fourth quarter of 2002, the “incremental demand would amount to a further 400 tons at the current gold price,” the report said.
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