The World Gold Council recently released a report titled “China’s gold market: progress and prospects” examining the rising demand for gold in the world’s most highly populated country. The report also explains why China’s gold market will continue to expand regardless of the current surge in demand.
Important to the trend is China’s growing middle class, expected to grow by over 60% (200 million) to a total of 500 million in the next six years. For comparison, consider that the total population of the United States currently stands at about 319 million. The people of China are also experiencing higher real incomes, more money in private savings, and urbanization.
Here are the seven key factors discovered in the report driving China’s newfound hunger for gold:
- Urbanization: China has reached 170 cities that have a population of more than one million. The middle class in these cities is currently at 300 million people, which may grow to 500 million in six years. These individuals have more disposable income and limited options for investment, which will drive up demand for gold amongst them.
- Savings: Chinese bank accounts currently hold an estimated $7.5 trillion. Amidst rising prices of homes and lackluster alternative savings options, gold is a stable investment. The Chinese also prefer physical gold over all other forms (a smart move), and new gold investment options are coming out.
- Jewelry: After almost tripling in size over just a decade, China has quickly become the world’s largest jewelry market, accounting for 30% of all global demand. These numbers are only expected to go up from here.
- Consumer sentiment: Not only do the Chinese use gold for special occasions and gift-giving, but 80% of consumers surveyed in the report said they planned to up their spending on gold jewelry in the next year, with the sentiment that they will have more disposable income and gold will maintain its value in the long term.
- Electronics: Industrially, gold is most commonly use in electronics, which have seen a huge demand increase in China in the past couple of years. China also holds the most gold-related patents, such as one for nanogold used in healthcare.
- Holdings: At the end of 2013, China became the world’s sixth largest holder of gold bullion, meaning gold makes up 1% of the country’s official reserves. Investors are speculating on whether the Chinese government has increased gold holdings.
- Production: Over the last 10 years, China has become the world’s largest source of mined gold.
There are different factors that can affect gold demand: population, urban expansion, disposable income, supply, and industrial and aesthetic uses. What does higher demand usually means for prices? It raises them, and many investors are viewing China’s production and consumption of gold as a foreshadowing of its long-term future.