Why young Chinese consumers matter to global jewellery gold demand

Changes in consumer behaviour and tighter currency controls saw China’s jewellery gold demand fall 13 per cent year-on-year in the fourth quarter of 2016, contributing to a 15 per cent drop in global demand for the year, according to the World Gold Council.

But this was more than offset by a whopping 70 per cent surge in investment demand, as inflows into gold-backed exchange traded funds reached their highest level since the global financial crisis in 2009, driven by uncertainties around interest rates and politics in the US and Europe.

Taking into account a 33 per cent decline in net gold purchases by central banks to the lowest level since 2010, overall global gold demand climbed 2 per cent to a three-year high of 4,215.8 tonnes.

“[Investment] inflows in the first half of 2016 were led by US strategic investors,” the council, which represents the world’s largest gold producers, said in a report on Friday. “Concerns over the uncertain path of future interest rate hikes, the US election, negative interest rates and price momentum supported inflows.

“Attention turned to Europe in the third quarter, where investors added...their holdings as concerns grew around the busy electoral calendar in 2017, with the Netherlands, France and Germany all going to the polls.”

The council said the inflow into ETFs saw an “abrupt turnaround” in November after President Donald Trump’s surprise win in the election removed a major uncertainty for investors.

His growth-boosting rhetoric raised expectations of a US interest rate rise and pushed the greenback higher, prompting profit-taking and a sharp correction in the gold price.