China’s appetite for gold down, but not gone: World Council

China’s appetite for gold down, but not gone: World Council

China's gold fever is expected to cool this year. (Image by matchbox_pl via Flickr) 

While China's gold demand is likely to stay flat this year as a result of the country's economic slowdown and constrained credit markets, the World Gold Council said Tuesday private acquisitions will rise to at least 1,350 tonnes by 2017.

Gold demand in China has expanded every year since 2002, when it declined, according to the industry group, whose forecasts are closely watched in the gold market.

The nation’s appetite for the yellow metal has helped to underpin gold prices since 2001, when many price and trading restrictions were relaxed. Last year saw frenzied buying as Chinese investors and jewellery buyers sought to capitalize on low prices.

China’s appetite for gold down, but not gone: World Council

Courtesy of the World Gold Council. Click to enlarge.

As a result, demand jumped 32% in 2013, and China overtook India as the world's largest gold-consuming nation. But it is unlikely that record pace can be maintained, even if prices turn lower, shows the WGC’s latest study.

A decreased interest for gold in China would threaten the recent price recovery, according to some investors. Gold futures are up 10% year to date, after dropping 28% last year, the largest annual fall since 1981. Unrest in Ukraine, a bumpy start to the year for stocks, and the US Federal Reserve's commitment to low interest rates in the long term have propelled gold higher. Investors typically seek the metal as a haven in times of turmoil and a store of value during periods of low rates.

China’s appetite for gold down, but not gone: World Council

Courtesy of the World Gold Council. Click to enlarge.

However, the traditional appeal of gold to Chinese consumers and their optimistic outlook for prices should result in private sector demand from all sources climbing to at least 1,350 tonnes by 2017.

“Rising real incomes will create many more potential consumers with greater spending power, particularly in the third- and fourth-tier cities,” the report says.

In addition to being the world’s biggest consumer of bullion, China is also the world’s largest source of mined gold. Over the past decade, production has doubled from 217 tonnes to 437 tonnes.

Demand for gold in Western markets, said the WGC, remained strong, especially in the US, where consumer acquired significant quantities of gold jewellery, gold bars and coins.

Read the full report here.