Rising Chinese Wealth Into Gold

Yesterday we summarised WGC’s 2017 gold demand report.  Reading such publications reminds us of the sheer scale of China’s influence in the gold market.

Whilst the report separates ‘investment’ and ‘jewellery’ into categories, what is lost on many is they are often one and the same for Chinese buyers.  Chinese buyers understand the fundamental value of gold but many prefer it in a more ornamental form, captured by the ‘jewellery’ category.

An article in Bloomberg yesterday reported on the current and projected growth in this segment on the back of the incredible growth in affluence in China.

“China’s growing throng of affluent consumers is driving a rebound in demand for gold rings, bracelets and necklaces as a property boom and high stock market valuations boost wealth in the largest bullion market.”

This follows 3 years of declines.

“The nation’s demand for gold jewellery climbed 10 percent last year to almost 700 metric tons as the wealthy increased purchases and consumption improved in second and third-tier cities, according to the China Gold Association. Buying of ornaments represented more than 60 percent of the 1,090 tons of gold consumed in China last year and made up a third of world jewellery demand.”

The article quotes the world’s biggest selling jeweller as seeing a 16% increase in sales in the 6 months to September and being optimistic of this trend of growth continuing off the back of rising affluence:

“Property and stock market rallies have generated wealth and lifted spending, said Wong. Home sales climbed to a record in December, shares hit the highest in two years last month and the economy accelerated last year for the first time since 2010.”

People often lose sight of the scale of China with a population nearing 1.4 billion people.  What might seem like small trends to us in the west, when applied to 1.4 billion, become huge by number.  For instance:

“Another driver is that the expiring Year of the Rooster was an unusually long one, with two springs, Kou said, noting this is auspicious for marriages, and could lead to more births this year. Gifts of gold are traditional for weddings and births.”

Goldman’s summarise this nicely…

“Rising wealth in China, and demand from Southeast Asia and emerging markets is unprecedented, Jeffrey Currie, global head of commodities research at Goldman Sachs Group Inc., said in a Bloomberg Television interview. “This has put in a bid into gold in an environment where typically it would trade down.”