China has the fasted developing gold market in the world. Many predicted China’s purchasing power would overtake that of the United States by 2019, in fact that has happened this year!
So what drives the Chinese gold market and does China really have an impact on the gold price?
It’s no secret that the Chinese have been buying gold and lots of it especially during 2013, for seven years in a row gold production in China has been the biggest globally.
In terms of consumption last year official records showed China had consumed 1174 tonnes however this figure is likely to be greater according to Xu Luode, Chairman of the Shanghai Gold Exchange.
The two presiding factors which dominate the Chinese market are gold jewellery and gold bullion, as more and more private Chinese investors seek out the benefits of holding physical gold as an asset.
Despite the momentous buying of China last year the per capita gold consumption is a mere 4.5grams compared with some countries whose per capita stands at 24 grams. Here we can see that China still noteworthy growth potential.
Although this year we have witnessed a slowing of the Chinese economy the gold trading volume still stood at 17% growth.
This also coincides with China opening up their gold market to the world for the first time. With an annual growth rate averaging at 7.5% this move is likely to harness even more influence over the gold price. Of course not anyone can trade on the Shanghai Gold exchange free trade zone, a criteria will be needed to be met, but fear not, it is likely that you will simply need to go through a broker to trade which might not be bad thing in this novel move.
When considering influences that affect the gold price the obvious choices are usually; US interest rates, US dollar strength, ETFs, QE and Indian imports. China may not have always been one of the reasons given but Jeremy East (MD of Global Head, Metals Trading, Standard Chartered Bank) comments at the recent LBMA Bullion Market Forum that China is the one to watch due to three significant reasons
- China has a gold welcoming policy and envisage a new type of global gold market where the currency is backed by gold similar to the US dollar.
- China have and still are becoming much wealthier with more money to spend and a greater realisation of the benefits of holding physical gold as an asset it is likely this demand will only continue to rise.
- Promotion of gold market from within: China have become the largest country in terms of gold processing of jewellery and small bars.
All in all china has emerged in many global sectors and has now secured its self as a dominate player with the global gold market, in the words of Jeremy East “Watch this Space”.