Price dive spurs record gold demand in China

Mainland boosts production as slump into bear market triggers buying rush by consumers

PUBLISHED : Tuesday, 11 February, 2014, 1:57am
UPDATED : Tuesday, 11 February, 2014, 1:57am

Gold consumption and production on the mainland expanded to records last year as prices that slumped into a bear market spurred sales of jewellery and bars, underlining a shift in global bullion demand from West to East.

Usage surged 41 per cent to 1,176.4 tonnes last year from 2012, according to data from the China Gold Association. Output rose 6.2 per cent to 428.16 tonnes, making China the largest bullion producer for a seventh year, it said.

China probably overtook India as the largest user last year, according to the World Gold Council.

Gold last year posted the biggest annual drop since 1981 as the United States Federal Reserve prepared to scale back monetary stimulus that boosted asset prices while failing to stoke inflation.

If Chinese [gold] demand is sustained, it will be a long-term bullish factor

"The surge in Chinese gold consumption has helped to limit price declines," said Duan Shihua, a partner at Shanghai Leading Investment Management. "If Chinese demand is sustained, it will be a long-term bullish factor."

Gold for immediate delivery sank 28 per cent last year to end a 12-year rally as the Fed decided in December to trim monthly bond purchases.

Gold fell 14 per cent in the two days to April 15, the biggest such drop in three decades, spurring purchases of bracelets and coins around the world. The lower prices boosted Asian demand, helping to absorb metal flowing from Western markets, the gold council said in November.

Chow Tai Fook Jewellery reported last week that same-store sales in Hong Kong, Macau and the mainland from January 17 to February 3 expanded 15 per cent from a year earlier.

Gold rose 3.2 per cent last month, the first monthly gain since August last year, as the MSCI All-Country World Index of equities fell 4.1 per cent on concern that a rout in emerging markets may worsen. In mainland China, manufacturing and services data last week signalled the economy may be slowing as the authorities seek to control credit and the property market.

Liu Xu, an analyst at Capital Futures, estimates that mainland demand exceeded 1,400 tonnes last year as the gold association's data probably does not include government purchases and buying by financial institutions.

Usage by the jewellery industry climbed 43 per cent to 716.5 tonnes, according to the association's data. Consumption of bars rose 57 per cent to 375.7 tonnes, while coin demand slipped 1 per cent to 25 tonnes. Industrial use was 48.7 tonnes and other use 10.4 tonnes.