January 23, 2014 1:00 pm

China becomes top gold consumer in 2013

A shop assistant sells gold bars in Beijing. Chinese consumer demand for gold has fallen by a fifth.©AFP

China has overtaken India as the world’s largest gold consumer thanks to soaring purchases of jewellery, minted Panda coins and small gold bars.

According to the Thomson Reuters GFMS gold survey, the most widely followed report on the industry, Chinese demand reached 1,189.8 tonnes last year, a 32 per cent year-on-year jump and a fivefold increase since 2003.

Its hungry factories and mushrooming cities had already made China the number one global consumer of industrial metals such as copper, aluminium and zinc.

The frenetic buying of gold in China, which led to a temporary shortage of physical stocks, was sparked by the 28 per cent fall in the precious metal’s price last year, the worst performance in more than three decades.

Following a 12-year bull run, gold lost its lustre in Europe and North America as economic conditions improved and the prospects of inflation receded. Western investors dumped gold-backed exchange traded funds in 2013, with holdings falling by 880 tonnes.

A simultaneous “Asian-led buying frenzy”, with consumers chasing bargains, resulted in gold bars being removed from vaults in Europe and other markets, melted into smaller bars in Swiss refineries, and shipped to the East. GFMS described the flow as the “largest movement of gold, by value, in history”.

Indian consumption rose 5 per cent to 987.2 tonnes last year, but was held back by new import tariffs and restrictions. In China there were no brakes. Gold jewellery fabrication rose nearly a third to 724 tonnes, surpassing India for the first time, and the retail sector boomed. In July and August, more than 200 gold showrooms opened in the southern city of Shenzhen.

Because many Chinese buy jewellery for investment reasons rather than adornment, high purity 24 carat gold products dominated sales. Purchases of physical bars – mostly kilobars and smaller weights – rose 47 per cent to 366 tonnes, a new record. In terms of gold coins, only Turkey minted more than China in 2013.

FT Video

2014: more tumult for gold?

Dec 2013: With the global economy on the path to recovery, gold’s 12-year bull run has ended. Evy Hambro, chief investment officer of BlackRock’s natural resources equity team discusses the outlook for bullion in 2014.

“Gold has always been popular culturally in China and now it’s increasingly seen as an asset class for individuals,” said Andrew Leyland, manager of precious metals demand at GFMS. “Greater wealth and disposable incomes created pent-up demand when prices were high, so when they dropped there was this phenomenal surge in buying.”

Were it not for Chinese purchases, the gold price would have been at risk of further falls. Outside Asia, investor appetite for the metal has remained weak, and few analysts expect the gold price to recover this year. GFMS forecasts an average price for 2014 of $1,225 a troy ounce – around $20 below current level – with physical demand remaining solid “but without a repeat of the bargain hunting surge”.

In recent years, China has also become the world’s biggest gold producer, with estimated output of 437.3 tonnes last year. Although there are no official figures, some of that metal is thought to have been purchased by the People’s Bank of China. The central bank last reported holdings of 1,054 tonnes, in 2009.

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