Seven Factors Driving Chinese Gold Consumption

Source:

"Global economic conditions, cultural roots alike boost demand for the yellow metal."

Commodity Online

China is on a gold drive and it has overtaken India as the world's largest purchaser of gold at 90.9 million tons in gold bars and coins for Q1, 2011. This is up 123% from 40.7 tons last year for the same period. There are seven factors that drive Chinese gold demand, according to the recent World Gold Council Report:

Culture: China has a golden culture and gold buying and gifting is an integral part of the same. When a child is born, it is customary on the part of Chinese people to gift the newborn with gold. Gold in China is considered to bring good luck and is touted as the color of emperors.

Hedging: Gold, a preserver of wealth, is used as a hedge against inflationary wealth loss. The same is the case with China, where gold is both an investment and a hedge against inflation.

Global Uncertainty: Gold forms only 1.6% of China's total wealth reserves. There is a possibility that People's Bank of China (PBOC) would buy more gold, given the uncertainties prevailing in the planet. This includes the MENA (Middle East North Africa) unrest.

Investment Diversification: A number of measures have been initiated by China's government to curb excessive rise in property prices. This has made other asset classes, including gold, to have better investment appeal.

Advisory: With the dollar losing its sheen subsequent to the QE schemes, Chinese economists like Li Yining are calling for increased gold purchases and improvement in gold reserve figures.

Institutional Investment: Chinese institutional investors like China Investment Corporation (CIC) are allocating more money into gold.

Prosperity: The World Gold Council also says that with the reforms taking root in China, and economy getting accelerated, the disposable income with Chinese middle class is also going up.

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