Gold Demand Surges in China as Production Sags

The Chinese are buying gold again after a slump in consumer demand last year.

Meanwhile, Chinese gold production is falling.

According to data released by the China Gold Association, gold demand rose 15.5% through the first three quarters of 2017. Demand totaled 815.9 tons, pushed upward by a resurgent jewelry market.

Demand figures released by the association include jewelry, bullion, and industrial gold, but exclude central bank purchases.

China Gold Association chairman Zhang Yongtao told the South China Morning News there are good signs that jewelry demand has returned to a growth track after a sluggish 2016. The data backs him up. Gold jewelry sales increased 7.4% to 503.9 tons through the first three quarters of this year. That compares with a 20% slump in sales during the same period last year.

The momentum is partly due to recovering prices since the beginning of the year, and more young consumers tying the knot, particularly in China’s smaller cities, which boosted demand for wedding jewelry.”

Investment gold demand jumped even higher by percentage, surging 44.5% to 222 tons. Investors flocked to gold as the Chinese government maintained its curb on property investments and kept a tight leash on capital remittances.

China ranks as the worlds leading consumer of gold and plays an important role in the world gold market. According to the World Gold Council Q2 2017 data, China accounts for about 28.6% of global jewelry demand, and 26% of the worlds bar and coin demand. The Chinese central bank owns the fifth largest gold reserves in the world. Analysts say consumer gold demand may top 1,000 tons this year.

As demand increases, gold production is dropping off in China. Chinese mine output fell 10% through the first three quarters of 2017, according to the China Gold Association. Chinese gold production came in at 313 tons through Q3. Analysts say an ongoing drive for raising environmental protection standards curtailed output in Shandong, Jiangxi and Fujian provinces. China is the world’s leading gold producer.

These basic supply and demand dynamics tend to get lost in media hype about Federal Reserve policy and the latest political maneuvering in Washington D.C. It’s important to keep these fundamentals in mind, even as the chattering in the news cycle drives short-term prices.

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