May 26, 2011

China Gold Demand Seen Outpacing Domestic Production

Increase of 22% over three years expected; will boost imports

The luster of gold has become a gleam in the eye of the Chinese, according to the country’s largest state-owned gold miner, and demand will increase acquisitions of the precious metal at a heightened pace over the next three years.

Sun Zhaoxue, president of China National Gold Group, has predicted that demand by Chinese citizens will continue to rise not just for jewelry but also as a hedge against hard times, Reuters reports. Sun put that increase in demand at 22% over the next three years to 700 tons, far more than the country’s output of 340 tons produced in 2010. In 2010, Chinese investors bought 571.5 tons, making up the difference between production and demand from both existing stocks and imports.

Going forward, China’s gold output won’t be adequate to meet the demand Sun has projected. The gap most likely will have to be filled by imports, although exact projections aren’t available because China does not publish its reserve figures or gold trade numbers.

While output is slated to rise as well, at 19% to 400 tons by 2014, the pace of production has already quickened, at 73.4 tons, up 4.6% for the first three months of 2011 over the same period for 2010.

Chinese investors have shown a hunger for both gold and silver since late 2010, although per capital consumption is just 4 grams, which is far lower than in other industrialized nations, Sun said. And although India is still the world’s largest consumer of gold, there’s plenty of room for China to catch up as income in the country rises.

"I'm very optimistic about the future of China's gold market," Sun said in the Reuters report.

Shanghai Gold Exchange, the only specialty precious metals exchange in China, began over-the-counter trading on a trial basis in April, opening the door for easy trade of gold in large amounts for institutional investors. Sun also asserted that Chinese output and reserves will increase in years to come due to Beijing's efforts to consolidate the gold mining sector, better the technology in use and push for prospecting below 1,000 meters.

Read coverage about the Financial Planning Association’s trip to China this month at AdvisorOne.

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