As the world's top gold producer and second largest consumer, China is the single most important player in the global gold arena.
Last year, Chinese gold demand grew by 32% — reaching nearly 25,000,000 ounces for the first time in history. Yet despite the country's seemingly insatiable appetite for the yellow metal today, world leaders are concerned the demand for gold could get out of hand...
More than doubling again in less than ten years!
The demand for gold in China has swelled intensely since deregulation of the market in 2001, growing by an average 14% per year.
China Gold Demand Per Capita
Jewelry is the principal sector of the Chinese gold market, accounting for almost 64% of all gold domestic demand in 2010. As rapid economic expansion recently boosted domestic disposable income, the demand for gold jewelry in China has more than doubled in the last seven years.
Meanwhile, the demand for gold as an investment has increased exponentially over the past 10 years, with the new era of the Shanghai Gold Exchange.
In 2010, gold demand for investment in China increased 71% over the previous year. This growth continued in the first quarter of this year.
China was the largest physical bar and coin investment market during 1Q 2011.
Quarterly China Gold Jewelry and Investment Demand
With ongoing global economic and financial uncertainty, gold's roles as monetary asset, universal currency, and risk diversifier make it an extremely attractive asset class for all investors.
But I believe the following four factors will be particular drivers in the development of the Chinese gold market over the next ten years...
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#1 The Rise of the Middle Class and Disposable Incomes
Two decades of economic expansion has created a new market and birthed a rapidly growing domestic middle class, which continues to expand today.
According to China Consumer Daily, it is estimated there will be 75 million households with annual income of more than US$4,300 by 2015, compared to just 15 million in 2005. Similarly, household savings are also expected to triple during the same period.
The Chinese are natural savers.