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Chinese demand for gold expected to increase by 25 percent over next four years

Gold demand in China is on the rise
Gold demand in China is on the risePhoto by China Photos/Getty Images

Chinese demand for gold is expected to increase by 25 percent over the next four years as the country’s citizens become wealthier, according to a new report from the World Gold Council.

According to the published report, consumer demand for gold in China will expand to at least 1,350 tons by 2017. Last year, China overtook India to become the largest consumer of gold in the world, accounting for about 28 percent of global gold usage.

"Whilst China faces important challenges as it seeks to sustain economic growth and liberalize its financial system, growth in personal incomes and the public's pool of savings should support a medium-term increase in the demand for gold, in both jewelry and investment," said Albert Cheng, the World Gold Council’s managing director of the far east, in a statement.

Last year, the Chinese government lifted a ban on bullion trading and Huaan Asset Management Co. and Guotai Asset Management Co. were granted state approval to begin selling China’s first gold-backed exchange-traded products. These actions followed the 2002 opening of the Shanghai Gold Exchange.

"We have witnessed astonishing increases in demand for gold from consumers across the country," Cheng said. "The cultural affinity for gold runs deep in China and when this is combined with an increasingly affluent population and a supportive government, there is significant room for the market to grow even further."

There are 170 cities in China with at least one million inhabitants each. The Chinese middle class will expand by more than 60 percent to 500 million in the next six years, the World Gold Council’s report stated.

Consumer gold demand in China increased 32 percent to 1,065.8 tons last year, the council said in February. Jewelry purchases of almost 669 tons accounted for 30 percent of the global total and will reach 780 tons by 2017, according to this week’s report. Annual bar and coin demand could near 500 tons by 2017, 25 percent above last year's record.

Currently, China has gold reserves totaling 1,054.1 tons. It is the fifth-largest holder of gold. Bullion accounts for about 1.2 percent of its total reserves, compared with about 70 percent for the U.S. and Germany, the largest owners.