A major report published by the World Gold Council "China's gold market: progress and prospects" suggests that private sector demand for gold in China is set to increase 20% from the current level of 1,132 tonnes(t) per year to at least 1,350t by 2017. Following the record level of Chinese demand in 2013, which saw the country become the world’s largest gold market, the report suggests that while 2014 is likely to see consolidation, the succeeding years are likely to see sustained growth.
Chinese gold demand in 2013 was exceptional. Jewellery buyers and investors in bullion products took full advantage of the rapid and sizeable fall in local gold prices.
They set the bar at a very high level – private sector demand for jewellery, investment and gold used in industrial applications hit a record
1,132 tonnes (t).
We expect 2014 to be a year of consolidation. The sudden price drop in 2013 meant some Chinese consumers brought forward jewellery and bar purchases, which may limit growth in demand in 2014. Expansion by the trade is also expected to slow, particularly in terms of additional manufacturing capacity. However, the lower domestic gold price should support purchases by consumers, especially of 24 carat jewellery.
Over the medium term physical gold demand is likely to see further growth driven by a number of factors, including:
• Rising real incomes will create many more potential consumers with greater spending power, particularly in the so-called third and fourth tier cities. Between now and 2020, Ernst & Young estimate that the number of middle class households will grow from 300 to 500 million.
• The pool of private savings is vast with further scope for consumers to increase their exposure to gold. Chinese households collectively hold an estimated US$7.5tn in bank accounts, while households overall allocation to gold - around US$300bn – is tiny by comparison. In addition, domestic gold prices will most probably remain at attractive and affordable levels during the next few years.
• The traditional appeal of gold to the Chinese people and consumers’ optimistic outlook for prices (60% of Chinese surveyed think Gold prices will increase) should result in private sector demand from all sources climbing to at least 1,350t by 2017.
Source: World Gold Council
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