Gold on display in a shop window in Hong KongMIKE CLARKE
China's consumption of gold is soaring alongside the price, as the Asian economic superpower and its citizens increasingly turn to the precious metal as a way to diversify their finances.
Gold prices have risen so quickly - 11.6 per cent in the last quarter alone and 84 per cent in the past three years - that it is becoming out of reach for some of the world's jewellery buyers and investors. Yet even at about $1,200 (U.S.) an ounce, Chinese demand from both is soaring. Retail investment demand in China rose 57 per cent in the first quarter of this year from a year ago, while jewellery demand increased 11 per cent, according to World Gold Council estimates.
Chinese gold consumption was worth more than $14-billion (U.S.) last year, which accounts for about 11 per cent of global demand. China is already the world's largest gold producer and, with estimates of demand doubling before the end of the decade, it may not be long before it surpasses India as the world's largest buyer.
And gold has a powerful ally in promoting it: the state.
Consider a recent push by the Chinese government for its citizens to buy more gold as an investment. Industrial Commercial Bank of China recently signed an agreement with the World Gold Council to help promote domestic demand for gold through new investment products.
The country is also turning to television advertising to encourage its growing middle class to buy gold as an investment. State-owned China Central Television has run spots urging citizens to buy gold, as well as silver, a major shift from only a few years ago when the country imposed strict controls on precious metals purchases for its citizens.
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China has also been ramping up its gold reserves and hopes to increase future holdings through unique agreements such as the one signed recently with Coeur d'Alene Mines Corp. to buy gold concentrates from a mine in Alaska. It's the first deal of its kind between China and a U.S. miner.
China's voracious demand, coupled with estimates of dwindling reserves at home and abroad, could also mean much higher prices in years to come.
"If gold demand were to continue to increase so markedly, domestic supply would be unable to keep pace. Whatever the outcome, China's outlook will almost certainly have implications for the global gold market," the World Gold Council said in a recent report.
Over the past five years, demand for gold has risen by an average of 13 per cent a year in China, according to the World Gold Council. It says Chinese gold mining producers have stepped up gold production by 84 per cent over the past decade, while its known reserves account for 4 per cent of total known global gold reserves.
The council estimates suggest China could exhaust its known gold mining reserves in six years from now. "This supply trend is only likely to reverse if China, which is still relatively undiscovered in terms of global exploration budgets, were to attract significant capital investment for exploration," the council said in a recent report.
That would leave China scrambling for more gold imports, once again putting its mark on global commodity demand.
In Chinese culture, gold is a symbol of wealth. It is a tradition to give gold as a gift after a baby is born, on birthdays, at Chinese New Year and as part of wedding jewellery.
The world's largest gold store, Beijing-based Caibai, says gold jewellery revenue rose 40 per cent in January from the previous year. The store sells everything from gold bars to jewellery and items such as statues.
Those numbers reflect a change in the consumer mindset - and the belief among more Chinese that gold is something they can buy for themselves, not just as gifts for others.
"In the year 2000, there wasn't literally an ounce of gold that moved around China without passing through the People's Bank of China," said DundeeWealth chief economist Martin Murenbeeld.
"People forget how far we've come in China. Contrast today, with the Shanghai Futures markets, open selling of gold to the public, new designs, new jewellery, government support for people investing in gold ... It's night and day."