China’s Soaring Gold Consumption Strengthens Market Value

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China Gold Consumption
"Brassy Bullion Bar on Coins" (CC BY-ND 2.0) by BullionVault

The most up-to-date figures from the China Gold Association suggest that the nation’s consumption of gold has risen by almost a seventh (15.49%) between Q1-Q3 2017, helping to cement values of gold bullion considerably.

The association’s latest report suggests consumer demand for gold is 815.89 higher, with the physical aspect of China’s gold marketplace prospering thanks to growing consumption from the nation’s cities rated second and third tier in terms of size and economy.

Earlier this year, the World Gold Council stated that more than a quarter (26%) of the world’s gold bar and coin demand derived from China and with just under 2000 tons of gold in its possession (1843) the nation boasts the fifth most significant reserves of gold on the planet. These reserves, combined with ever-increasing consumer interest is a recipe for increasing commodity values, with the spot gold price at the time of writing up 0.74% in value so far this year.

The secondary influences for a strengthening gold market in China are the nation’s property market – which is levelling off somewhat – and an extremely unpredictable securities market. It’s also worth noting that in terms of output i.e. production of gold within China, production had declined by almost 4% in the opening three quarters of this year compared to 2016. This may also have had a bearing on the modest increases in the value of gold as increased demand meets reduced quantities.

Within one of the latest reports from RBC Capital Markets, Christopher Louney, one of their leading commodity strategists, remarked that demand for physical gold remains a key facet for consideration when attempting to predict movements of values in future months.

“India and China alone represent more than 50% of global jewelry, bar and coin demand in any given period … China represents a bright spot with its upward trajectory, a theme we expect to remain intact for some time given divergent gold policy stances among the world’s two largest consumers,” said Louney.

Furthermore, RBC Capital Markets anticipate gold prices to advance to more than $1,300 per ounce next year, as its value moves largely in line with the Federal Reserve’s monetary strategy. They also noted that potentially volatile political dangers around the globe, such as the relationship – or lack of – between North Korea and the United States, are one of the primary influential factors that could push gold values beyond that point.

Further afield, at the time of writing, gold prices have risen for a third successive day due in no small part to the American inflation data released, providing further proof that the Federal Reserve will consider increasing interest rates in the United States. The inflation data led to the dollar weakening, which has also had a positive impact on the spot gold price, making it cheaper for holders of other currencies and stimulating demand elsewhere.

Robin Bhar, head of metals research, Societe Generale, believes an uncertain outlook regarding tax cuts in the United States could continue to underpin the gold price.

“The biggest factor right now shoring up gold is the weaker dollar,” said Bhar.

“Also, there’s speculation that tax cuts could be a long time coming, meaning the Fed will not have to be as aggressive as it might have been.”

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