China is Rising, And So Is Its Gold Demand

Despite fluctuating prices on the global market, the London-based World Gold Council (WCG) predicts that Chinese gold demand will increase between 17 and 25 percent – or 1,350 metric tons – by 2017.

Chinese Demand For Gold 2012 – 2014: Down, Up, Then Stabilization

Back in 2012, India topped the international list for private sector gold demand. The next year, when investment metal prices fell by nearly 28% – the steepest drop since Ronald Regan occupied the Oval Office – Chinese investors jumped on the opportunity, bought more, and catapulted past India as the world’s largest consumer of private sector gold. In 2013, Chinese holdings represented a whopping 26% of the global private sector gold market. This year, however, gold demand in China is expected to consolidate and stabilize after last year’s proverbial “rush.”

It will not, however, stay at 2014 standards for long.

Why China’s Demand Expected To Rise Significantly Between 2015 and 2017?

The WGC considered several economic and demographic factors when analyzing China’s expected precious metal investment output over the next three years.

  1. Population growth in China outpaces the United States by 100%. By 2020, experts expect the Chinese population to grow by about 200 million. Statisticians explain that the spike citizens will also translate into a spike in personal wealth and jewelry consumption. As such, more 24K gold necklaces, earrings and bracelets will flood the market impact China’s gold and precious metal demand.
  2. Due to longer age expectancies, the number of older and retiring Chinese citizens looking to invest will also increase. Since fewer investment opportunities exist for middle- and upper-class Chinese citizens, gold investment is a popular option.

Outlook & Risk Factors

What could render the WGC’s predictions wrong? The financial analysis firm warns that their outlook is dependent on the absence of an unforeseen global or regional financial storm that causes a liquidity crisis and a chill amongst market players. In other words, if a market storm of 2008 proportions once again hits, you can throw these figures out the window.

Another possible risk factor is changing China, itself. The Asian nation is currently transitioning from an export and investment economy to a growth and consumption economy. As such, the pecuniary road could be rocky for the rising power and affect precious metal investment.

All in all, however, all signals point to “very positive” medium-term prospects for Chinese demand for gold over the next three years.

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