The World Gold Council believes gold markets will experience a new tailwind as China continues to release its wide-ranging stimulus package into the economy.
According to Ray Jia, head of research in China, improved consumer confidence and GDP growth is expected to drive Chinese gold demand moving forward.
“That said, other factors such as the gold price, the number of weddings, changes in young consumers’ tastes, as well as the industry’s consolidation … are also vital drivers of local gold jewelry demand,” Jia said.
Jewelry demand has long been the biggest driver of gold markets in China, though recent research shows a growing segment of investors looking to purchase bullion.
Chinese demand for gold, historically dominated by jewelry, has shifted slightly as bar and coin purchases have become more common. (Source: World Gold Council)
Continuing to shine
Gold has long been viewed as a symbol of good luck in addition to its popularity as a fashion accessory in China.
“We believe its relevance in Chinese consumers’ daily lives, as well as in local investors’ portfolios, will continue to shine,” Jia wrote. “We will keep a close eye on future developments and provide more detailed analysis as needed.”
World Gold Council research showed that for every 1% increase in the value of local equities, a reduction of 0.4% is seen in gold demand. This correlation is attributed to risk appetite during strong economies.
“But the aggressive stimuli should provide tailwinds,” Jia wrote. “Our analysis shows that economic growth is the fundamental driver of Chinese gold demand. More specifically, every one percentage point increase in China’s annual GDP growth leads to a 5.2% rise in gold jewelry consumption and a similar 5.1% increase in bar and coin buying, holding all else constant.”
Demand pressure
Gold withdrawals from the Shanghai Gold Exchange have remained below the long-term average, according to the report.
“While the surging gold price has helped sustain some investment buying, it has hampered gold jewelry consumption. And the pessimistic outlook for China’s economy has also limited household spending on hold,” Jia wrote.
This data from the Shanghai Gold Exchange shows demand for gold in 2024 has dropped below the 10-year average. (Source: World Gold Council)
That outlook could be shifting, however, as Chinese stimulus continues to boost the economy and ease worries of a slowdown.
“The anticipated rebound in economic growth will likely boost China’s gold demand,” Jia wrote. “And as the largest components of that demand, we believe gold jewelry and bar and coin will be impacted the most.”
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