China's demand for gold to double in 10 years

Chinese demand for gold is set to double in tonnage terms within just ten years according to the latest World Gold Council analysis, Gold in the Year of the Tiger . Over the past five years, demand for gold in China has increased at an average rate of 13% per year. Chinese gold consumption was worth more than $14 billion in 2009, which is equivalent to 11% of global gold demand.

“The excitement generated by the Chinese economic growth story is not new. However, clarifying the impact of China’s GDP growth trajectory on the outlook for the Chinese gold market has been elusive – until today," Marcus Grubb, Managing Director, Investment at WGC, said by media release.

“Now one of the world’s largest economies, China has already rapidly become a prominent gold market. However, our analysis confirms that significant untapped growth potential exists in the Chinese gold market. In China, if gold demand continues to accelerate and becomes more comparable with other major markets, WGC expects it to double in tonnage terms within the next decade, which would represent annual gold demand of approximately $29 billion at year end 2009 average prices.”

WGC’s key findings were:

§ Chinese consumption intensity lags other major markets substantially. If gold were consumed in China at the same per capita rate as in India, Hong Kong or Saudi Arabia, annual Chinese demand could increase by 100 to 4,000 t in the jewellery sector alone.

§ Total gold investment demand in China has grown in line with the country’s GDP and population during this period and WGC expects this trend to continue going forward.

§ While China is the world’s sixth largest official holder of gold, its gold reserves currently account for less than 2% of total reserves and, therefore, remain low by international standards. Even adding 10% from its current level would translate to an additional 100 t of gold offtake.

§ While gold demand is accelerating, WGC expects Chinese supply growth to be challenging in the medium to long term; and is likely to decline in the future.

§ During the last decade, Chinese gold mining producers have stepped up gold production by 84%, however its known reserves account for just 4% of total known global gold reserves.

§ This supply trend is only likely to reverse if China, which is still relatively undiscovered in terms of global exploration budgets, were to attract significant capital investment for exploration.

According to Eily Ong, Investment Research Manager at WGC and author of the report, gold demand has already outpaced Chinese production growth since 1992, even before the deregulation of private ownership a decade later. "However, our analysis shows that if gold demand were to continue to increase so markedly, domestic supply would be unable to keep pace. Whatever the outcome, China’s outlook will almost certainly have implications for the global gold market.”

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