Chinese gold demand to rise by 25% by 2017

China is the world's leading gold nation, having overtaken India last year, and the future is even shinier. Consumer demand will rise 25 per cent to 1,350 metric tonnes by 2017, the London-based World Gold Council said in a report this month.

In 2013, China accounted for 26 per cent of global private-sector gold demand.

China is both the world’s largest jewellery and physical bullion investment market, and it has become a key driver of global demand.

Growth may consolidate this year, the council said, after 2013’s price decline spurred consumers and investors to increase their purchases of jewellery and bullion by a combined 259 tonnes.

“The sudden price drop in 2013 meant some Chinese consumers brought forward jewellery and bar purchases, which may limit growth in demand in 2014,” the council said in the report. “Expansion by the trade is also expected to slow, particularly in terms of additional manufacturing capacity. However, the lower domestic gold price should support purchases by consumers, especially of 24 carat jewellery.”

The expected rise in middle-class households by the end of the decade to 500 million from 300 million now is going to boost demand for gold. Rising incomes will create many more potential consumers with greater spending power, particularly in the so-called third- and fourth-tier cities.

China lifted a ban on bullion trading and opened the Shanghai Gold Exchange in 2002.

The council also expects China’s vast pool of private savings – Chinese households hold €5.4 trillion in bank accounts – means there is a lot of scope for consumers to increase their exposure to gold.

“In addition, domestic gold prices will most probably remain at attractive and affordable levels during the next few years,” it said.

There are challenges as China moves from investment and export-led growth to a more balanced growth model, with more private consumption, but this looks set to translate into more purchasing of gold.

And then of course, the traditional appeal of gold to the Chinese people and consumers’ optimistic outlook for prices should result in private sector demand from all sources climbing to at least 1,350 tonnes in three years.