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Chinese Gold Consumption Surged in 2017; Production Fell

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Gold consumption in China grew 9.41% in 2017, according to information released by the China Gold Association. Gold jewelry demand, especially in poorer regions, helped drive overall demand higher.

The Chinese consumed 1,089 tons of the yellow metal last year. The South China Morning Post called the surge in demand “a big turnaround” after a 6.7% slump in 2016. 

For the fifth straight year, China held on to its ranking as the world’s number one gold consumer.

Demand for gold jewelry was especially strong, rising 10.4% on the year. It was particularly robust in poorer regions of the country as incomes rose, according to the South China Morning Post. The mainland economy grew at a stronger than expected 6.9%. This bolstered consumer confidence and fueled spending and investment in precious metals.

In 2017, appetite for gold jewelry was particularly robust in lower-tier cities as China’s newly accumulated wealth gradually spreads from affluent coastal areas to less developed regions, according to Zhang Yongtao, deputy chairman of the association.”

Yongtao said he expects demand to remain strong into 2018.

Gold demand could remain resilient this year – there are early signs the growth trend will continue.”

The Chinese also bought a lot of gold bars. Sales were up by 7.28% to 276.39 tons. Analysts say tightening government restrictions on property investment and capital outflows increased the allure of gold. There was also a lot of safe-haven investing driven by constant saber-rattling between the US and neighboring North Korea.

According to Reuters, trade volume for gold products on the Shanghai Gold Exchange jumped by 11.5% last year to 54,292 tons. Turnover increased by 14.8% from the previous year to 14.98 trillion yuan (about $2.38 trillion). Shangai Gold Exchange ranks as the world’s largest physical gold exchange.

Meanwhile, gold production in China fell. Chinese mines produced 426.1 tons of gold in 2017, a 6.03% drop. It was the first production slump since 2000, according to the Chinese Gold Association. According to Reuters, the plunge in production happened despite the country’s biggest producer reporting record-high output for 2017. China National Gold accounts for around 10% of China’s overall production.

China ranks as the top gold-producing country in the world.

Analysts blame the fall in production on stricter environmental policies and increased resource taxes. But the production drop in China is part of a broader worldwide trend. As we reported last month, South Africa could run out of gold within four decades. Analysts say that at current production levels, South Africa has only 39 years of accessible gold reserves remaining. This could be another sign the world is approaching, or has reached, “peak gold.”

Peak gold is the point where the amount of gold mined out of the earth will begin to shrink every year, rather than increase, as it has done pretty consistently since the 1970s. During the Denver Gold Forum last September, the World Gold Council chairman said he thinks the world may have already reached that point.

The increase in gold demand in China stands in stark contrast to tepid sales in the United States. Peter Schiff talked about sagging US investment in gold last summer during an interview at International Metal Writers Conference noting that a lot of the investors who typically buy gold in America voted for Trump, and they’re no longer worried about the economy. As a result, they’re not buying gold. They’re buying stocks instead.

I think they’re making a big mistake. They should be selling their stocks and buying even more gold.”

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