After a horrific 2013, gold has been among the best-performing commodities of the year.
For the most part, Wall Street commodities analysts remain firmly bearish on the yellow metal in the near term.
However, no one can ignore the economic rise of China, where the consumers’ hunger for gold is only becoming increasingly voracious.
“The next six years are expected to see China’s middle class grow by over 60%, or 200m people, to a total of 500 million,” write the analysts at the World Gold Council. “Comparing this to the total population of the US, which stands at 319m, puts the size of this new market of affluent consumers, with the propensity to buy gold, in perspective. In addition to these newly emerging middle classes, rising real incomes, a deepening pool of private savings and rapid urbanisation across China suggest that the outlook for gold jewellery and investment demand in the next four years will remain strong.”
The WGC just published massive amounts of research on the supply and demand dynamics of gold in China.
Here are six key facts that they highlight (verbatim):
- China’s continuing urbanisation means that it now has 170 cities with more than one million inhabitants - within these cities, the middle classes currently number 300million and are set to grow to 500million by 2020. Demand for gold amongst those with a greater disposable income and limited investment opportunities will continue to grow.
- Chinese savings levels remain high – there is an estimated US$7.5 trillion in Chinese bank accounts and household allocations to gold remain small, around $300bn. 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 (GAPs). New gold investment products mean that medium term demand for bars and coins could reach close to 500t by 2017 – a rise of nearly 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 669t in 2013, it accounts for 30% of global jewellery demand. Estimates suggest that demand will continue to grow and reach 780t by 2017. There are now over 100,000 retail outlets selling 24k gold and thousands of manufacturers nationwide.
- Consumer sentiment toward gold is unwavering – although 40% of jewellery
consumption relates to weddings, the appetite for gold in China goes beyond occasions and gift giving. 80% of consumers surveyed for this report planned to maintain or increase their spending on 24-carat gold jewellery over the next 12 months believing 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 grown with electronics being the key driver (climbing from 16t in 2003 to 66t in 2013. China is also the leading market for gold related patents such as the use of nanogold in healthcare.
- Official gold holdings in China totalled 1,054t at the end of 2013making 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) due to the rapid growth of the country’s foreign exchange holdings which reached around US$3.8 trillion at the end of 2013. Speculation continues as to whether the Chinese government has increased its gold holdings.
- China has gone from being a minor producer to the world’s largest source of mined gold – in the past ten years production has doubled from 217t to 437t.