As Year of the Dog dawns China leads world gold demand

China remains the world’s biggest gold market as consumers and investors alike get ready for the Chinese Lunar New Year of the Dog

Ahead of the Chinese New Year celebrations China’s demand for gold is predicted to be as strong as ever. The Middle Kingdom remains the world’s largest gold market, however, demand this year has the added boon of recent stock market volatility to potentially push up prices.

Commentators have said they expect “double-digit growth in demand in 2018”, as markets price in the Lunar New Year rise. Wavering demand in China’s housing market is seen as an opportunity for gold as a safe haven asset, as investors react to subsiding prices resulting from regulatory constraints being placed on the sector. The gradual revision of gold importing laws in China is also seen as a fillip for the yellow metal.

More broadly, as the traditional new year holiday approaches, China’s historic appetite for gold remains strong. According to the World Gold Council, China remains the world’s biggest consumer of coins and bars of gold, purchasing 306.4 metric tonnes in 2017. That amount is well above the five-year average of 248.8 and represents a rise in China’s gold consumption of 8% from 2016, according to the Council.

However, total gold consumption in China for 2017 has been estimated as considerably higher than these figures. Sharps Pixley analyst Lawrie Williams, cites the Chinese Gold Association (CGA), saying imports totalled 1,089.1 tonnes, but cautions such figures understate the true amount of gold bought by inside the world’s latest economic superpower.

“Chinese gold imports from Hong Kong in 2017, according to official figures, totalled 628.2 tonnes while imports from Switzerland totalled 299.8 tonnes,” wrote Williams. “China’s own gold output during the year was, according to the CGA, 426.14 tonnes, so from these sources alone China will have absorbed 1,354.1 tonnes of gold.” However figures of imports from the UK, the USA and Australia have not yet been revealed and there are suggestions of unreported imports made from Russia at a state level.

“It would thus not be unreasonable to put China’s gold ‘absorption’ at at least 50% above the CGA’s gold consumption figures – probably quite a bit higher,” says Williams.

The jewellery factor

Alistair Hewitt, head of Market Intelligence at the World Gold Council, pointed to the Chinese appetite for gold jewellery and its rise in line with Indian consumption through 2017. “Jewellery demand picked up as economic conditions improved in China and a policy change in India removed a barrier to demand, while next-generation smartphones boosted gold demand from technology companies.”

Despite a fall in production in China as environmental controls triggered a 9% fall in gold mined, 2017 was China’s 11th year in a row as the world’s biggest consumer of gold. China.org reported last week on the strength of that market, citing the level of technological sophistication behind jewellery. Wang Lixin, the World Gold Council’s managing director in China told the newswire that “with the addition of AI-enabled tools, we believe the outlook for Chinese jewellery demand is positive.”

He Jingtong, a professor of business at Nankai University in Tianjin, emphasised how commonplace the buying of gold within China’s growing cities has raised competition and choice. “The shift in taste has pushed the industry to upgrade, as many Chinese jewellery producers have already adopted machines with computer-controlled programs to design not only 18-karat, but also 24-karat gold products for better and more personal designs.”