China is set this year to become the world’s largest physical market for gold, precious metals analyst GFMS said on Friday.
Releasing its quarterly newsletter, GFMS said this was measured on the basis of local mine production plus fabrication and bar-hoarding demand.
“Although its growth rate has slipped, mine production will reach a new record high in 2008, cementing the country’s position as the world’s number-one producer,” said GFMS chairperson Philip Klapwijk.
Meanwhile, on the demand front, China will produce in excess of 300 tonnes of jewellery this year, most of that in the form of 24-carat articles, sales of which have remained fairly buoyant recently, in contrast to some attrition in the formerly booming “K-gold” or 18-carat segment.
“Jewellery remains the largest single source of demand in the country, but in terms of growth it has been eclipsed lately by a boom in investment demand.
“Sales of gold bars to the public have soared this year and, in contrast to jewellery, which may tread water in 2009, the outlook for such bar-hoarding next year is very positive,” said Klapwijk.
Although large parts of the country still lack a modern sales infrastructure, many Chinese investors now have access to bullion products that are competitively priced on both the bid and ask sides.
Safe-haven buying
Demand for gold as a hedge and as a speculative instrument has grown in the wake of the bursting of local property and stock market bubbles and the ensuing drop in interest rates as the authorities seek to ward off the threats to growth stemming from such domestic sources, and also from the increasing weakness of export markets.
Klapwijk said it is possible that a combination of looser monetary policy plus the massive fiscal programme recently announced will enable China to achieve a “soft landing” and GDP growth around the 8% mark.
But any undershooting of that level, though, would be likely to result in jewellery demand falling due to the impact of slower income growth, rising unemployment and, most probably, higher local gold prices outweighing any safe-haven purchases of high-carat jewellery.
“Moreover, as intimated above, we expect such safe-haven buying increasingly to shift away from traditional 24-carat jewellery to lower margin bullion bars,” said Klapwijk.
“Overall, therefore, gold demand in China may hold up surprisingly well in 2009, although some shift in its composition looks probable,” he said. — I-Net Bridge