Gold investment demand in China to grow if price rally holds

SINGAPORE (Reuters) - Gold investment demand in China has started 2016 quite strongly, outperforming interest in jewelry, but for the momentum to continue bullion would have to maintain its price rally, a World Gold Council (WGC) official said.

Customers look at gold necklaces at a jewelry store in Xuchang, Henan province, August 12, 2015. REUTERS/Stringer

With a 14 percent gain, gold XAU= is the best performing asset so far this year after falling for three straight years to 2015. The metal hit a one-year high last week as turmoil in global stock markets triggered safe-haven demand.

China, the world’s top bullion consumer, has seen strong demand for investment products such as bars around last week’s Lunar New Year holiday, Roland Wang, managing director for WGC in China, told Reuters.

The holiday is typically a strong demand period for gold as it is a popular gift, but buying then tends to slow.

“We have seen quite solid (investment) demand for this past one-and-a-half months. We have to see gold maintain the rally for quite a period of time. That will determine further purchases by investors,” Wang said.

“(Chinese) buy when they are sure that the gold price will keep going up.”

Chinese demand for gold bars and coins rose by a fifth to 201 tonnes last year as a stock market rout and weakness in the currency sent investors seeking safety in the precious metal. But demand is still well below 2013’s record 407 tonnes.

Investment demand only accounts for around 20 percent of total Chinese consumption, the bulk of which is in jewelry. Demand for jewelry fell 1 percent in 2015 to 783.5 tonnes.

Jeweler demand has taken a hit from a slowing economy, Beijing’s anti-corruption drive and the continued drop in prices.

Even during last week’s holiday, investment demand growth performed better, Wang said, adding that retailers are keeping inventories low and jewelry manufacturers are facing tight credit conditions.

Reuters reported last year that Chinese banks are growing alarmed by a rising number of defaults among jewelry manufacturers, prompting them to review new gold lending more carefully.

“Jewelry demand may face some headwinds,” Wang said. “We have more confidence in investment demand than jewelry demand.”

Wang did not provide a forecast for total Chinese demand in 2016, but said consumption will be “stable.” Demand totaled 984.5 tonnes in 2015.

Reporting by A. Ananthalakshmi; Editing by Richard Pullin