Outlook on Chinese demand for gold in 2009 to be strong

By Maggie Zhang  |   2008-12-20  |     NEWSPAPER EDITION

CHINA is set to become the world's largest physical market for gold this year in terms of production, fabrication and consumption, GFMS said yesterday in a report.

The demand next year is expected to remain strong in China, the precious metal consultancy said. China's gold mine production will reach a new record high this year, cementing the country as the world's No. 1 producer, GFMS said, without giving a specific figure.

Meanwhile, demand in China is expected at more than 300 tons of gold jewelry this year, mostly in the form of 24-carat items. The sales of 24-carat gold have remained fairly buoyant recently, in contrast to some attrition in the formerly booming "K-gold," or 18-carat gold jewelry, GFMS said.

Jewelry remains the largest single source of gold demand in China. But, the growth in jewelry demand has been eclipsed lately by a boom in investment demand, GFMS said. Demand for gold as a hedge and as a speculative instrument has grown following a decline in the local property and stock markets and on expectations of interest rate cuts on savings, Philip Klapwijk, executive chairman of GFMS, said yesterday.

China has shifted from a "tight" to a "moderately easing" monetary policy to boost domestic economic growth against the backdrop of a global downturn. Investors are seeking alternative investment channels when the commodities, stock and property markets are sluggish, so the outlook for gold as an investment tool is still positive.

"Overall, gold demand in China may hold up surprisingly well in 2009, although some shift in its composition looks probable," Klapwijk said in the report.