Demand for gold from China, the world’s second-largest gold consumer after India, is set to double in tonnage terms within the next ten years from current levels due to jewelry consumption and investment needs, the World Gold Council (WGC) said in report released on Monday.
Marcus Grubb, Managing Director of the WGC said the council’s 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.” This would represent annual gold demand of $29 billion at year end 2009 average prices, Grubb added.
Chinese gold consumption, which is one of the lowest compared with other major gold consuming countries, was worth more than $14 billion in 2009, equivalent to 11% of global gold demand. The report notes that 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 tonnes in the jewelery sector alone.
Over the past five years, China’s demand for gold has increased at an average rate of 13% per year. While China is the world’s sixth largest official holder of gold, its gold reserves currently account of less than 2% of total reserves, therefore, remain low by international standards, the council said.
Eily Ong, investment research manager at the WGC and author of the report, points out that the council’s “analysis confirms the potential for an increasing imbalance in supply and demand in China. 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.” [emphasis added]