Gold consumption and production in China expanded to records as prices that slumped into a bear market spurred sales of jewelry and bars, underlining a shift in global demand from west to east. Bullion increased.
Usage surged 41 percent to 1,176.4 metric tons in 2013 from the year before, according to data from the China Gold Association today. Output rose 6.2 percent to 428.16 tons, making China the largest producer for a seventh year, the Beijing-based association said in an e-mailed statement.
China probably overtook India as the largest user last year, according to the producer-funded World Gold Council, which highlighted the eastward shift in global demand as holdings in exchange-traded products contracted by a record. Gold posted the biggest annual drop since 1981 last year as the U.S. Federal Reserve prepared to scale back monetary stimulus that boosted asset prices while failing to stoke inflation.
“The surge in Chinese gold consumption has helped to limit price declines,” said Duan Shihua, a partner at Shanghai Leading Investment Management Co. “If Chinese demand is sustained, it will be a long-term bullish factor.”
Gold for immediate delivery sank 28 percent last year to end a 12-year rally as the Fed decided in December to trim monthly bond buying. Prices rallied to a two-week high today, and were at $1,272.87 at 11:32 a.m. in London. While that’s down 34 percent from the record $1,921.15 in September 2011, it’s 5.6 percent higher this year.
Gold fell 14 percent in the two days through April 15, the biggest such drop in three decades, spurring purchases of bracelets and coins around the world, including in the largest economy after the U.S. The lower prices boosted Asian demand, helping to absorb metal flowing from western markets, the London-based WGC said in its quarterly report in November.
Assets in bullion-backed ETPs shrank 869.1 tons, or 33 percent, last year, declining for the first time since the first product was introduced in 2003, data compiled by Bloomberg shows. Holdings totaled 1,737 metric tons on Feb. 7.
The slump into a bear market in April prompted analysts from Goldman Sachs Group Inc. to Credit Suisse Group AG to reduce price forecasts. Last month, Morgan Stanley predicted that there is “more pain to come” for gold as the global recovery gains traction, with investor sales from ETPs outweighing growth in Chinese physical demand.
Chow Tai Fook Jewellery Group Ltd. (1929), the world’s largest listed jewelry chain, reported last week that same-store sales in Hong Kong, Macau and the mainland from Jan. 17 to Feb. 3 expanded 15 percent from a year earlier. The company’s sales momentum is expected to continue in 2014 as the mass-market jewelry segment grows, said UBS AG analyst Spencer Leung.
Gold advanced 3.2 percent in January, the first monthly gain since August, as the MSCI All-Country World Index of equities slumped 4.1 percent on concern that a rout in emerging markets may worsen. In China, manufacturing and services data last week signaled the economy may be slowing as authorities seek to curb excessive credit and rein in the property market.
“As the domestic market offers little alternative choices — the equity market underperformed while the government discouraged investments in the real-estate sector — more of the growing wealth is looking to gold as a means to store value,” said Liu Xu, an analyst at Capital Futures Co. in Beijing.
Liu estimates that China’s demand topped 1,400 tons in 2013 as the association’s data probably does not include government purchases and buying by financial institutions. The nation last announced a change to official bullion reserves in April 2009, when they were reported at 1,054 tons.
Usage by China’s jewelry industry climbed 43 percent to 716.5 tons in 2013, according to the association’s data. Consumption of bars rose 57 percent to 375.7 tons, while coin demand slipped 1 percent to 25 tons, the data showed. Industrial use was 48.7 tons and other use 10.4 tons, it said.