China Gold Demand Rising 25% by 2017 as Buyers Get Wealthier

Apr 15, 2014 2:15 am ET

(Updates prices in fifth paragraph.)

April 15 (Bloomberg) -- Gold demand in China, which overtook India as the largest user last year, will rise about 25 percent in the next four years as an increasing population gets wealthier, according to the World Gold Council.

Consumer demand will expand to at least 1,350 metric tons by 2017, the London-based council said in a report today. Growth may be limited this year after 2013’s price decline spurred consumers to do more buying last year, it said. China accounted for about 28 percent of global usage last year, the council estimated in February.

Buying accelerated last year as prices slumped 28 percent, the most since 1981, and the nation became the top buyer in place of India, where import restrictions curbed demand. China’s economy will expand 7.4 percent this year, economists surveyed by Bloomberg estimate. While that’s set to be the least since 1990, it’s still more than double expected growth in the U.S.

“Whilst China faces important challenges as it seeks to sustain economic growth and liberalize its financial system, growth in personal incomes and the public’s pool of savings should support a medium-term increase in the demand for gold, in both jewelry and investment,” Albert Cheng, Far East managing director at the council, said in a statement accompanying the report.

Gold for immediate delivery climbed 10 percent to $1,320.33 an ounce this year by 6:39 a.m. in London, according to Bloomberg generic pricing. The metal slipped to an almost three- year low of $1,180.57 in June, extending a drop from a record $1,921.17 set in September 2011.

Gold Financing

By the end of 2013, about 1,000 tons of gold may be tied up in financing deals in China, in which commodities including copper are used as collateral for credit amid restrictions on lending, said the council. Most of the metal locked up in such deals have been built up since 2011, it said.

China has 170 cities that have at least 1 million inhabitants each, and the middle class will expand more than 60 percent to 500 million in the next six years, according to the report. About $7.5 trillion is held in bank accounts and household allocations to gold remain “small” at about $300 billion, it said.

The nation’s consumer gold demand increased 32 percent to 1,065.8 tons last year, the producer-funded organization said in February. Jewelry purchases of almost 669 tons accounted for 30 percent of the global total and will reach 780 tons by 2017, according to today’s report. Annual bar and coin demand could near 500 tons by 2017, 25 percent above last year’s record.

Bullion Reserves

China’s gold reserves total 1,054.1 tons, making it the fifth-biggest holder by country, according to the council. Bullion accounts for about 1.2 percent of its total reserves, compared with about 70 percent for the U.S. and Germany, the largest owners.

China’s government lifted a ban on bullion trading and opened the Shanghai Gold Exchange in 2002. Huaan Asset Management Co. and Guotai Asset Management Co. won state approval last year to list the country’s first gold-backed exchange-traded products.

“We have witnessed astonishing increases in demand for gold from consumers across the country,” Cheng said. “The cultural affinity for gold runs deep in China and when this is combined with an increasingly affluent population and a supportive government, there is significant room for the market to grow even further.”

--With assistance from Glenys Sim in Singapore.