China demand puts the shine back on gold
Consumption of yellow metal rises as economy revives, lifting sector outlook
After gold consumption in China shot up during the third quarter of 2020, thanks to stable recovery of the domestic economy, insiders believe a return to heavy consumer purchases of jewelry in China is likely.
Led by a steady economic recovery and rapid revival of the wedding market, gold consumption in China saw a quarterly growth of 28.71 percent, with consumption for gold coins and bars witnessing a quarter-on-quarter growth of 66.73 percent, the China Gold Association said.
While gold consumption plunged 28.66 percent year-on-year to 548.09 metric tons for the first nine months of the year as a whole, the third quarter witnessed substantial consumption recovery, it said.
Zhu Yi, a senior analyst for metals and mining at Bloomberg Intelligence, said customers adjusting to higher gold prices, along with greater investment demand, are a recipe for the precious metal’s potential price acceleration in 2021.
“Market sentiment for gold is likely to strengthen on dollar wobbles amid rising geopolitical risks in a lowerfor-longer interest-rate environment,” Zhu said.
“Central banks and investors may absorb the market surplus as they seek gold for portfolio diversification and possibly as a hedge if inflationary pressures return on the substantial stimulus measures injected amid the global health crisis,” she added.
Chinese jewelers have also been increasing their efforts in online marketing, with many jewelry manufacturers across the nation bringing their businesses online to reduce health risks and improve efficiency.
According to the association, consumption of gold jewelry in the Chinese market reached 343.08 tons in the first nine months of 2020, down 34.43 percent year-on-year.
Consumption of gold coins and bars slumped to 142.52 tons, down 14.07 percent from a year earlier, while consumption of gold for industrial and other use shrank to 62.49 tons, down 21.11 percent.
Thanks to the rise of gold prices, leading enterprises in the sector have witnessed better-than-expected performance during the first nine months.
Zijin Mining, one of China’s biggest State-owned gold producers, booked revenue of more than 130.4 billion yuan ($19.85 billion) during the first three quarters, up 28.34 percent yearon-year,
with net profit reaching a record 4.57 billion yuan, up 52.12 percent.
The average gold price during the first three quarters reached $1,735 per ounce, up 27.27 percent year-on-year, according to the association.
Zhu said higher gold prices have boosted the top lines of major gold producers such as Zijin Mining and Shandong Gold.
Bloomberg Intelligence said the average price of gold jumped 30 percent in the third quarter year-on-year.
“Zijin Mining’s third quarter revenue and net profit increases are mainly on stronger prices of gold and copper, as the average prices of gold
and copper increased 30 percent and 10 percent, respectively, in the first nine months year-on-year,” she said.
China produced 262.93 tons of gold in the first nine months, a decrease of 12.42 tons or 4.51 percent compared to the same period last year. The association said this is mainly due to the pandemic, which also caused disruptions in normal operations at gold mines.
As processors resumed production and COVID-19 came under control, domestic gold production has already returned to normal since the second quarter, when gold production saw a quarter-on-quarter increase of 5.81 percent. The third quarter continued with this trend, with production of
the yellow metal up 6.21 percent compared with the previous quarter, said the association.
Zhu said she believes China’s output of gold would maintain the uptrend for the fourth quarter as higher gold prices offer wider margins for producers, and because operations were returning to normal as the virus was being reined in.
Shandong, Henan, Yunnan and Shaanxi provinces, and the Inner Mongolia autonomous region saw the highest gold output nationwide, with total production exceeding 87.68 tons, making up 39.95 percent of the country’s total gold output, according to the association.