Precious metal output and purchasing soar

Despite plummeting gold prices, gold output and purchasing in China both hit record highs in 2013, reinforcing expectations that China might overtake India as the top buyer of the precious metal this year, data from the China Gold Association revealed on Monday.

The record-high level of demand for gold in the world's second-largest gold buyer came as prices of bullion slumped about 25 percent per gram to its lowest level since 2010, stabilizing at 240 yuan ($40) at the end of the year.

The Chinese bought 1,176.40 metric tons of gold, up 41.36 percent over the previous year, marking a seventh year in a row as the world's top gold miner. It is also the first time the world's second-largest gold buyer has exceeded the threshold of 1,000 metric tons, the association said on its website.

The purchase of gold jewelry, which accounted for more than 60 percent of total demand in 2013, rose 42.52 percent year-on-year to 716.50 metric tons.

Gold consumption in 2012 was only 832.18 tons, an increase of a mere 9 percent from a year earlier.

Meanwhile, the surge in demand also saw an increase in output. China's gold production rose 6.23 percent from a year ago to reach 428.16 tons last year.

The price freefall has prompted a gold rush in China, as Chinese households, mostly females, like snapping up small gold items when prices drop and bargain when the price rises, although analysts said they are unlikely to be a game-changer in the world's gold market, where the price of gold ended at $1,202 an ounce in 2013, a drop of 28 percent from the beginning of the year.

"China's private households remain gold purchasers rather than investors," said He Zhicheng, chief economist of Agricultural Bank of China. "As a consequence, they can hardly become price setters."

He said demand for gold is likely to continue to rise a little at the beginning of this year but will cool down later because a broader range of financial services products will give China's growing middle class other channels in which to invest their money.

Du Haiqing, vice-general manager of China Gold Group Corp, the country's largest gold miner, told Reuters earlier that the gold rush in China will gradually slow because "the current level will not be sustained and will fall to normal levels as consumers become more rational".

Because China's demand for gold has outpaced domestic production, gold imports from Hong Kong, a main conduit for gold into China, soared for the first nine months last year, standing at 855 metric tons. The high import figure, which is well ahead of a supply deficit of at least 570 tons, could be because of purchases by the central bank, analysts said.

China does not publish gold trade data or the numbers from Hong Kong, but it gives the best picture of the country's trade in the yellow metal.

China ranks No 5 in terms of gold reserves, with around 1,054 metric tons.