China’s Gold Demand Seen Rising 13% as Council Pares Target

China’s Gold Demand Seen Rising 13% as Council Pares Target
Shoppers browse gold jewelry and ornaments at a gold and silver shop in Shanghai, China. Photographer: Qilai Shen/Bloomberg

Gold demand in China, the second-largest user after India last year, may expand 13 percent to 870 metric tons in 2012, the World Gold Council said, dropping a forecast for consumption to reach as much as 1,000 tons.

Jewelry demand may expand 7.7 percent to 550 tons, slower than the 13 percent growth last year, Albert Cheng, Far East managing director at the producer-funded group, said in an interview. Demand for bars and coins may gain 24 percent to 320 tons, lower than the 38 percent climb last year, he said.

Cash gold slumped for a fourth month in May in the worst run in 13 years as Europe’s debt crisis drove investors to seek the dollar as a haven over the precious metal. Gold sales in China in the second quarter were slower-than-expected as local consumers usually refrain from buying when a rally stalls, Cheng said yesterday in Beijing. He made the 1,000 ton forecast in May.

“We expect China’s gold demand to be close to 900 tons this year,” Philip Klapwijk, global head of metal analytics at Thomson Reuters GFMS Ltd., said in an interview today. “We see quite a strong support in place for gold around $1,550,” Klapwijk said in Beijing, forecasting a fourth-quarter rally.

Spot gold gained 0.4 percent to $1,594.50 an ounce at 5:34 p.m. in Singapore. The metal, which reached a record $1,921.15 last September, has rallied for 11 straight years as investors sought protection from weaker currencies and inflation, and demand in emerging markets increased.

Jewelry Sales

“From our talk to the industry people, we gathered that the Europe’s debt crisis has led to a firmer U.S. dollar, which in turn suppressed the investors’ willingness to buy gold,” Cheng said in Beijing yesterday. “Gold jewelry is also discretionary consumption, so consumers feel they can wait.”

China remains the “most important player on the global gold market,” Commerzbank AG said in a report yesterday, citing increased demand from an expanding middle class and purchases by the country’s central bank. Demand in China totaled a record 255.2 tons in the first three months, compared with 232.5 tons a year earlier, the World Gold Council said in a report in May.

The second-quarter is usually a quiet season in terms of gold sales in China, Cheng said, adding that an estimate of demand will be released in August. Demand should be lower in the three-months to June 30 compared with “an exceptionally good” first quarter, he said.

“We are still optimistic on China’s gold-investment demand as investors here don’t have much choice in terms of investing their wealth,” Cheng said. “The stock market’s performance is poor and the property market’s rally has stalled.”

China’s benchmark stock index in Shanghai has lost 1.6 percent this year. Premier Wen Jiabao pledged on July 8 to continue property controls and prevent prices from rebounding, according to an official Xinhua News Agency report.

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