China’s Gold Demand And Its Overall Impact On The Precious Metals Market

It is no secret that the demand for precious metals in Asia is largely due to the consumption of gold by two countries – India and China, which also happen to be two of the most rapidly booming economies on the planet.

Chinese gold demand however has been observed to slightly depreciate after 2014 as their economy shrank, but this could also be attributed to the mining activities in China which has largely been kept under wraps with regards to how much gold they are actually mining and the story most experts give to the masses is that the decline is due to the decline in purchasing gold that is gift related.

According to reports pertaining to the gold consumption of China, within the first 3 months of 2014 the total gold consumption in China increased by less than 1 % which was in comparison an increase of slightly above 2.4 % to about 323 metric tons which could be attributed to an array of factors that make more sense than people have stopped buying gifts made out of gold.

To add substance to that theory, experts nag at the reason behind new laws that were imposed limiting ‘gift giving’ by officials much like the laws that are already in place in India. The only reason that a government such as China would decide to reduce gold imports is obviously to due to trade deficits.

Although gold imports have been on the decline it was not lesser than previous years on the whole as the demand for gold did rise by a small percentage, but when it comes to the shiny yellow metal, even a slight % increase could mean billions of dollars. According to experts China will eventually increase their consumption of gold in the coming years to 20 % or more because gold investments in China is a major middle class venture and the Chinese simply do not have sufficient gold to quench the market thirst.

The fact that the spot gold price has been hovering at AUD 1350 for some time now has made investors slightly reluctant as they wait for the price to drop to AUD 1300 before the gold buyers start hacking at the market. Sellers are eager but buyers are sluggish in China according to Albert Chen who is the managing director of the Far East for the World Gold Council.

On the western front however, traders were a bit baffled as they tried to comprehend the factors surrounding the sluggish growth in gold demand from China as in 2013, China was not only the largest producer of gold in the world, but they were also the biggest consumer market for gold, most of the produced gold were absorbed domestically and the import volume for gold also increased at the same time.

China’s economy is indeed growing rapidly and imports to sustain their manufacturing faction is expected to continue increasing as the private sector heads towards a free economy that may very well send the prices of precious metals soaring, that might prompt Chinese precious metal investors to sell gold before the value of gold stabilises again.

These events are not about ‘if they will transpire’ it is about ‘when’ they will transpire. According to most gold bugs this scenario is expected to unfold within the next 3 years or by 2020 providing a heads-up for those who are looking to invest in gold.