Downtrend in gold price boosts demand in China

Consumption up in Jan-Sept period across coins, jewelry and industrial use 

Gold consumption in China rose 5 percent year-on-year in the first three quarters of this year to almost 850 tons, industry data showed.

The price downtrend since April has further boosted strong demand in China, market insiders said.

Demand in the fourth quarter is expected to stay strong due to China-US trade tensions (which enhanced gold's safe-haven asset status), the growing strength of the US dollar, and the depreciation of the Chinese yuan, they said.

According to the China Gold Association, gold consumption via the jewelry sector increased steadily, reaching nearly 540 tons in the first three quarters, up around 7 percent year-on-year.

Use of gold for industrial purposes rose the most, around 25 percent year-on-year, to 82 tons on the back of strong demand from electronic product manufacturers.

Consumption in the gold coins segment rose 6 percent year-on-year to 18 tons. Price downtrend boosted consumer demand, especially for jewelry, said the CGA.

Better designs, and gold varieties with higher added value also boosted consumption of the yellow metal, especially in third-and fourth-tier cities, where gold jewelry accounts for a substantial share of overall consumption.

But consumption in the form of gold bars fell 5 percent year-on-year to 211 tons.

During the first half of this year, gold consumption in China rose 7 percent year-on-year to a three-year record of 332 tons. That is a contrast to the global downtrend.

Gold demand worldwide dropped 6 percent year-on-year to almost 1,960 metric tons, the lowest level since 2009, according to the World Gold Council.

Analysts said demand for gold jewelry in China has been driving the global gold industry for long. "Demand for gold jewelry had bottomed out in 2016 after a strong price recovery curbed jewelry spending that year, amid world economic growth challenges and weaker consumer sentiment," said Zhu Yi, senior analyst of metals and mining at Bloomberg Intelligence.

"Gold consumption is expected to continue its uptrend on the back of strong demand and growth in high-end sectors like jewelry, and the industry is moving to produce more retail products to meet customer needs."

Gold consumption in China reached 1,089 tons in 2017, up 9.41 percent, with demand for jewelry, bars and industrial-use yellow metal surging.

Zhu said the growth rate of gold consumption has been steadily increasing in the past nine months partly because of investor concerns relating to the China-US trade tensions. "Going forward, gold demand from jewelry will benefit from bargain-hunting on potential price pressure from the US dollar appreciation, and improving global economic growth.

"Gold's safe-haven asset status remains strong due to global geopolitical and macroeconomic challenges, such as the trade conflict, Brexit, and inflationary pressure. Investments in bars and coins improve as the performance of other asset classes weakens."

According to the association, China's gold enterprises have been stepping up overseas expansion since this year.

Zijin Mining Group Co Ltd's executives, for example, told China Daily earlier China's largest gold producer will seek to expand its gold assets abroad in countries rich in resources like large mines of gold and copper.

Zijin's overseas projects are going to be the mainstay of the company's development so as to seek more opportunities to compete in the global market, said Chen Jinghe, its chairman.

China, despite being a resource-rich country, has sites of only relatively low-grade ore, and they are not easily accessible.

Chinese companies' gold production abroad reached 35 tons by the end of last year. The country has imported raw materials to the tune of 854,150 tons worth more than $1.69 billion last year, CGA data showed.

Song Xin, head of the CGA, said despite the disadvantages, China has advanced gold mining and refining technologies, and talent advantage, and can thus play a complementary role in many markets abroad, especially those participating in the Belt and Road Initiative, most of whom have substantial gold resources.

The BRI has provided new opportunities for the Chinese gold industry, Song said.