China demand is important to watch because China has been the #1 producer of gold for the last 10 years and the #1 consumer of gold for the last four years. The World Gold Council came out with its first-quarter gold demand summary. Even though global demand was down – due to comparisons with a very strong first quarter of 2016 and a decline in central bank gold buying – gold demand in China rose 8% year-over-year for the first quarter of 2017, but the big story is that private Chinese investment demand in gold bars and coins rose 30% to 105.9 tons, which was the fourth-highest quarterly gold sales total on record for China. This compares to a 9% rise in demand for bars and coins globally. In effect, private gold demand is rising strongly while central bank and ETF (“paper gold”) demand has declined.
Private Chinese demand is rising because the alternative investments there – cash, stocks and real estate – are all becoming less attractive. Roland Wang, WGC’s managing director for China, said that Chinese investors are buying gold due to “concern over the weakness of the yuan” (their home currency) and because the “outlook for the property market is gloomy, and the stock market looks weary.” By this process of elimination, he said, “gold was one of the few investment options for Chinese investors.”
The WGC predicts that Chinese gold demand this year – and each year through 2020 – will amount to between 900 and 1,000 metric tons, or about one-third of all newly-mined gold. In addition, the WGC gold demand report said, “demand will be further supported by the launch of new products from banks on mobile applications, which are making gold more accessible to China’s retail investors.” Some of these new products include interest-bearing gold accounts from commercial banks, which can be traded online, enabling investors to withdraw physical gold through their bank. Financial companies are also reaching out to younger investors, which is important for the future of gold demand in the world’s most populous country, which is also the country growing the fastest in wealth and income over the last few decades.
Meanwhile, in India, the world’s #2 consumer of gold, imports of gold in the first quarter of 2017 reached their highest level since 2014, according to the WGC report. The strong rupee has made the gold price attractive for Indian buyers. Gold imports last quarter more than doubled to 270.1 metric tons from 127.4 tons in the same quarter of 2016 and just shy of the 279.5 tons imported in the fourth quarter of 2014.