How a 60% increase in weddings is driving gold demand in China

Stockhouse Editorial
1 Comment|April 17, 2014

A new report by the World Gold Council illustrates the extent to which China has become a key driver of global gold demand.

Here are some key findings from the report, which is titled: China’s gold market: progress and prospects.

Chinese gold demand in 2013 was exceptional, WGC said in its report. Private sector demand for jewelry, investment and gold used in industrial applications hit a record 1,132 tonnes.

The report says rising real incomes will create many more potential consumers with greater spending power, particularly in so-called third and fourth tier cities. Between now and 2020, Ernst & Young estimates that the number of middle class households will grow from 300 million to 500 million.

China has become the most important physical gold market in the world. It is both the number one producer and consumer of the precious metal.

Jewellery

Jewellery forms the bedrock of gold demand in China, accounting for close to 60% of all private sector gold demand.

Shenzhen is the world’s largest gold jewelry manufacturing centre, accounting for over 70% of China’s production base.
It is estimated that close to 40% of Chinese 24 carat jewellery consumption is related to weddings.

The number of marriages, according to the mainland’s official data for China (which includes figures for Hong Kong, Macao, and Taiwan) has increased by 60% from the middle of the last decade to 13.2 million at the end of 2012. This has undoubtedly made an important contribution to growth in demand for 24 carat gold over the last decade.

Gold’s place at the centre of traditional Chinese weddings is an important manifestation of its cultural importance.

2014 is likely to be a year of consolidation after 2013’s spectacular growth in demand, although much will depend on the trend in local gold prices.

Investment demand

Since investment in bullion was permitted in 2004, demand for bars and coins has soared form a mere 10 tonnes to 397 tonnes in 2013. This phenomenal increase is connected to the relatively limited set of investment options for savers in China.

The World Gold Council says that while investment demand could reach close to 500 tonnes by 2017, 2014 is expected to be a year of consolidation.

It also said investors in China believe that U.S. economic policies will eventually undermine the dollar and drive up the international price of gold.

Industrial demand for gold has grown strongly but is tiny compared to jewelry and investment demand.

Gold use in a variety of industrial applications accounted for around 5.5% of total private sector  demand and 8% of Chinese fabrication demand in 2013.

Electronics is the dominant source of industrial gold demand.

Official sector

China’s official monetary gold reserves, according to data supplied to the IMF, totaled 1,054 tonnes at the end of 2013.

This figure has been unchanged since 2009, when reported gold reserves jumped from a long-standing level of 600 tonnes.

China’s outsized-exposure to the U.S. dollar compels it to diversify its reserves; increasing its gold holdings would help this process.

Successive years of large current account surpluses have resulted in a build up of foreign exchange reserves, some US$3.8 trillion at the end of 2013.

Based on a declared stock of 1,054 tonnes, China is the world’s sixth largest holder of bullion, but this only represents 1% of its total official reserves.

Gold supply

Domestic gold supply consists of mine production and recycled gold. Although local supply has risen substantially in the past decade, it has been outpaced by the growth in domestic demand.

Domestic supply has grown substantially over the past decade from 137 tonnes in 2004 to 563 tonnes last year.

In 30 years, China has gone from being a minor producer to the world’s largest source of mined gold.

Production in China comes mainly from over 600 primary mines in what is a fragmented market.

It would appear that the single largest producer is China Gold Group, which in 2013 produced 39.4 tonnes from its own mines. Shandong is historically the heartland of China’s gold mining industry, and remains the largest producing province in the country.

Production doubled in the past decade to reach a record 437 tonnes in 2013, but there are doubts it can be sustained at this level.
Tags: GOLD

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frankseles
so true/ United States Debt Clock $ 17,571,648,003,878
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April 17, 2014
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