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Two reasons why China's demand for gold is growing

by , 26 May 2014

In 2013, demand for gold in the Chinese private sector soared to record levels of 1,132 tonnes. The World Gold Council (WGC) anticipates China's demand for the yellow metal to grow another 20% by 2017. This underlines the fact that China loves gold. So what's driving the gold market in China? Let's take a closer look…

Chinese gold driver #1: An emerging middle class

Until recent years, China didn’t have the private demand for gold. But now there’s an emerging middle class with higher incomes, Frank Holmes in Money Morning US explains.

Look at Shenzhen. Three decades ago, this was a town with around 330,000 people. It now houses over 10 million people. And accounts for 70% of China’s jewellery fabrication. This just goes to show how minimal consumer demand for the yellow metal was 30 years ago.

The emerging middle class are spending their new wealth. And that includes items like gold jewellery and gold coins. Consumers also bought more gold to insure themselves against high inflation.

Chinese gold driver #2: Gold jewellery is in demand

The WGC states there are two main drivers of gold:
  • Love trade; and
  • Fear trade.
These two drivers relate to the cultural affinity for gold, particularly in the east.

Chinese consumers keep buying gold jewellery and coins every year. And this demand rises when there are religious holidays and celebrations.

The volume of gold jewellery consumed in China has tripled over the last ten years. Last year, this led to China overtaking India as the largest consumer and manufacturer of gold jewellery. You can see this in the chart below…

Chart of Chinese jewellery consumption

Helping China take this top position was the import restrictions imposed by the Indian government. This led India’s consumption to fall 10% last year.

So there you have it, two reasons why China’s demand for gold is growing.

Two reasons why China's demand for gold is growing
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