According to report published by the World Gold Council, entitled: ‘China’s gold market: progress and prospects’, private demand for gold in China will see sustained growth over the next four years.
Albert Cheng, Managing Director of the Far East at the World Gold Council said: “Since liberalisation of the gold market began in the late 1990s and the subsequent offering of gold bullion products by local commercial banks from 2004, we have witnessed astonishing increases in demand for gold from consumers across the country. The cultural affinity for gold runs deep in China and when this is combined with an increasingly affluent population and a supportive government, there is significant room for the market to grow even further. The country is now at the centre of the global gold eco-system.”
“Whilst China faces important challenges as it seeks to sustain economic growth and liberalise its financial system, growth in personal incomes and the public’s pool of savings should support a medium term increase in the demand for gold, in both jewellery and investment.”
The key findings from the research include the following:
• China’s continuing urbanisation means that it now has 170 cities with more than one million inhabitants – within these cities, the middle classes currently number 300 million and are set to grow to 500 million by 2020. Demand for gold amongst those with a greater disposable income and limited investment opportunities will continue to grow.
• Chinese savings levels remain high – there is an estimated US$7.5 trillion in Chinese bank accounts and household allocations to gold remain small, around $300bn. Gold is seen as a stable, accessible investment by consumers, particularly in the light of rising house prices and a lack of alternative savings options. Chinese investors have a preference for physical gold over paper, with investment focused on small bars, gift bars or Gold Accumulation Plans (GAPs). New gold investment products mean that medium term demand for bars and coins could reach close to 500t by 2017 – a rise of nearly 25% above its record level last year.
• China has become the world’s number one jewellery market, nearly trebling in size over the past decade – at 669t in 2013, it accounts for 30% of global jewellery demand. Estimates suggest that demand will continue to grow and reach 780t by 2017. There are now over 100,000 retail outlets selling 24k gold and thousands of manufacturers nationwide.
• Consumer sentiment toward gold is unwavering – although 40% of jewellery consumption relates to weddings, the appetite for gold in China goes beyond occasions and gift giving. 80% of consumers surveyed for this report planned to maintain or increase their spending on 24-carat gold jewellery over the next 12 months believing that gold will hold its long-term value and because they expect to have a higher level of disposable income.
• Chinese electronics demand for gold will see small gains in the next four years – industrial demand has grown with electronics being the key driver (climbing from 16t in 2003 to 66t in 2013). China is also the leading market for gold related patents such as the use of nanogold in healthcare.
• Official gold holdings in China totalled 1,054t at the end of 2013 making the country the world’s sixth largest holder of bullion – based on this declared stock, gold represents 1% of China’s total official reserves (down from a peak of almost 2% in 2012) due to the rapid growth of the country’s foreign exchange holdings which reached around US$3.8 trillion at the end of 2013. Speculation continues as to whether the Chinese government has increased its gold holdings.
• China has gone from being a minor producer to the world’s largest source of mined gold – in the past ten years production has doubled from 217t to 437t.
Equity Release on demand?
As demand increases, we have a responsibility to our clients to ensure that we deliver the best possible advice that we can. And as stated in the recent FCA review, we should be evidencing this advice – which is why we continue to record all interactions with our clients regardless of where they take place.
Equity release is never going to be right for everyone, which is why we look at each client on an individual basis and as part of a multi-product solution; but I think that a growing number of people will consider equity release as a part of their plan for financing their later life.