China’s Gold Demand Drops in First Half on Investments

China’s gold demand fell 19 percent in the first six months of this year as investors bought fewer bars and coins, offsetting increased demand for jewelry, the China Gold Association said.

Consumption in China, which passed India last year as the world’s biggest user, slid to 569.5 metric tons, the Beijing-based association said in a statement today. Demand for bars sank 62 percent, while gold use in jewelry rose 11 percent, according to the statement.

An 8.9 percent price rise this year amid unrest in Ukraine and the Middle East has hurt consumption in China, which is expected to be “more or less the same” on a full-year basis in 2014, Zhang Bingnan, vice-chairman and general secretary at the association, said in an interview in Singapore last month. Demand will rise about 25 percent in the next four years as an increasing population gets wealthier, the London-based World Gold Council said in April.

“China bought too much last year and there’s significant stock built up onshore that will take some time to work through,” Victor Thianpiriya, commodity strategist at Australia & New Zealand Banking Group Ltd., said by phone from Singapore. “Demand was very strong last year and not something people expected to be repeated this year. The investment bar side tends to be more speculative and price sensitive, while jewelry is pretty static.”

Purchases in China accelerated last year to a record 1,176.4 tons, after a 28 percent price slump that was the biggest annual drop in more than three decades. Banks including Goldman Sachs Group Inc. and Morgan Stanley expect gold to extend declines even as holdings in bullion-backed exchange-traded products rebound from the least since 2009.

Bars, Jewelry

Gold for immediate delivery traded at $1,309.02 an ounce at 4:52 p.m. in Singapore from $1,306.42 yesterday. Bullion of 99.99 percent purity on the Shanghai Gold Exchange has climbed 10 percent in 2014.

China’s demand for bars dropped to 105.6 tons in the first half from a year earlier, while jewelry consumption climbed to 426.2 tons, according to the association. Bullion used in industry rose 11 percent to 26.8 tons, while demand for gold coins and other uses of the metal dropped 44 percent to 11 tons, it said.

Net gold imports from Hong Kong fell to 52.3 tons in May, down 20 percent a month earlier and less than half the 106 tons a year ago, according to calculations by Bloomberg News based on data from the Hong Kong Census and Statistics Department last month. Mainland China doesn’t publish such data.

Strong Demand

The World Gold Council said in April that its long-term demand outlook remained intact as China’s consumption was expected to expand to at least 1,350 tons by 2017 amid rising wealth. The nation accounted for about 28 percent of global usage last year, according to the council. The nation’s jewelry purchases of almost 669 tons in 2013 made up 30 percent of the world’s total, it said.

“When gold fell last year, it seemed cheap,” Russell Baird, director at Baird & Co. Ltd. in Singapore, said in a telephone interview. “It’s still cheap but one of the reasons we haven’t seen that repeat in demand is because the price has been fairly static. Demand is going to stay quite strong.”

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net

To contact the editors responsible for this story: James Poole at jpoole4@bloomberg.net Ramsey Al-Rikabi, Thomas Kutty Abraham

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