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Capital Gold Group Report: World Gold Council says Chinese Gold Consumption May Double in 10 Years

March 31, 2010 by · Leave a Comment 

SINGAPORE: Gold consumption in China may double within the next 10
years, boosting prices as supplies fail to keep pace with booming demand
from investors and the jewelry industry, the World Gold Council said.

“China has an insatiable appetite for gold, which looks likely to
continue in an environment where domestic mine supply lags behind
demand,” the Council said in a report today.

China’s economy grew 10.7% in the fourth quarter from a year earlier,
the fastest pace in two years, after a 4 trillion yuan ($586 billion)
stimulus package spurred record lending and consumption. The world’s
biggest gold producer has increased reserves by 76% to 1,054 metric tons
since 2003 and has the fifth-biggest holdings by country, Hu Xiaolian,
deputy governor of the People’s Bank of China, said in April.

“Near-term inflationary expectations and rising income levels are likely
to support the investment case for gold as an asset class, especially
given that Chinese consumers are high savers and are looking to gold to
protect their wealth,” the council’s report said. “Jewelry and
investment growth are expected to be the chief drivers of demand.”

Bullion prices have gained 21% in the past year as the global recession
spurred demand for haven assets and the dollar weakened 5% against six
major currencies. Gold for immediate delivery dropped 0.3% to $1,104.55
an ounce at 9:17 a.m. in Singapore.

‘Snowball Effect’

“Supply issues such as higher mine development costs, rising input costs
and potential threats relating to supply disruption, tougher safety
regulations and depleting ore bodies could put a much higher floor under
the gold price,” the council said in the report.

Demand in China from investors and the jewelry industry, the two largest
buyers in the country, reached a combined 423 tons in 2009, while
domestic mine supply was 314 tons, according to World Gold Council data.

The shortfall will create a “snowball effect” as the country’s
production may not keep pace with the annual leap in consumption, the
report said. China’s gold output rose 8% a year from 2006 to 2009, it said.

If gold jewelry buying in China reaches the same per capita rate as
India, Hong Kong or Saudi Arabia, the nation’s annual demand could
increase by at least 100 tons to as much as 4,000 tons, the Council said.

Gold accounts for 1.6% of The People’s Bank of China’s $2.4 trillion
total reserves, according to the report. If the bank raised its gold
holdings to the peak of 2.2% reached in the fourth quarter of 2002, the
“incremental demand would amount to a further 400 tons at the current
gold price,” the report said.

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