Gold consumption in China is at a record high as Chinese investors and banks take advantage of the bearish market. Low gold prices have spurred a significant demand for the yellow metal, with increased sales of jewelry and bullion bars throughout the country. Reports indicate that total usage of gold in China increased 41% in 2013 to more than 1,100 metric tons. This number is more than 500 metric tons more than expected, leaving the world wondering if the Chinese are in fact stockpiling the precious metal.
Why Are Chinese Investors Running to Gold?
China has surpassed India as the world’s largest consumer of gold bullion, and will likely maintain that position as wealth continues to expand throughout the country. The Chinese middle-class is growing rapidly, and individuals have limited channels for investment. This fact, coupled with a bear market, has made gold an attractive asset class for Chinese investors.
Concerns for the health of emerging markets are also mounting as the Country World Index of equities reported a 4.1% slump. The manufacturing sector in China warned of an economic slowdown last week, which may be fueling the consumption of gold by Chinese citizens. Fears of a weakening Chinese economy and an underperforming equities market are likely sending people to invest in gold as a store of value.
Chinese Government Dips Into Gold
Individual investors are not the only ones adding gold to their holdings. Analysts predict the Chinese government is purchasing significantly higher volumes of gold since 2012. The allocation of Chinese gold reserves rightly dwarfs the country’s foreign currency reserves, however the increased consumption is certainly noteworthy.
Official figures show that China produced and imported more than double the volume of gold in 2013 than its 2012 total. These reports show that the Chinese government was the leading buyer of gold in the country, far surpassing the amount consumed by its own citizens. The real question analysts are trying to determine is why the sudden increase and if it is a topic for concern.
Taking Cues on China's Gold Consumption
China’s record gold consumption underlines a significant shift from west to east in global demand for the precious metal. But what does this mean for the rest of us? As China holds more than $1.32 trillion in U.S. Treasury securities, perhaps Americans should be questioning why this drastic shift is occurring. It leaves us wondering, is China stockpiling gold in preparation of a global economic crisis? Or perhaps they are simply following the best-known strategy for investing: buy low, sell high.