The latest gold news out of China is yet another bullish development for investing in the yellow metal…
Increasing gold demand in China has put the Asian nation on track to become the world's biggest consumer of the precious metal.
According to the World Gold Council, China's gold consumption is on pace to increase to a record 1,000 tons this year, up 29% year over year, surpassing India as the leading global user of gold.
Gold has been flowing into mainland China this year even as local output increased. Over the first nine months of 2013, net imports from Hong Kong more than doubled to 826 tons.
In the first six month of 2013, the China Gold Association reports gold consumption in China climbed 54% to 706.36 tons. That compares to the country's 2012 tally of 776.1 tons and India's total of 864.2 tons, according to the WGC.
Demand for gold jewelry, bars, and coins has grown precipitously in China and nearby nations including India, Indonesia, and Vietnam. HSBC Holdings PLC reports the collective region currently makes up 60% of global gold demand, a strong 35% increase from 2004.
Bullion demand in China, and across all of Asia, is expected to escalate further as inflation ignites purchases. Annual inflation in China surged to an eight-month high of 3.2% last month, up from 3.1% in September.
Related: The One Gold Chart You Have To See
To accommodate this mushrooming demand, Malca-Amit Global, a Hong Kong-based company that stores and transports precious metals and diamonds, opened a gold vault in Shanghai large enough to store 2,000 metric tons, or roughly $82.5 billion of gold at today's price, according to Bloomberg calculations.
The storage facility becomes the largest such unit for the company. It also has space in Singapore, New York, Zurich, Geneva, London, and Bangkok.
"Such a facility is a massive vote of confidence for the Chinese gold market," Philip Klapwijk, managing director of Hong Kong-based Precious Metals Insights Ltd, told Bloomberg. "The trend for demand has been very strongly positive," Klapwijk continued.
What's Boosting China's Gold Demand
Lower gold prices and rising incomes of China's middle class are behind this record-breaking trend.
Soaring foods costs, robust factory output, and solid investment data all point to signs of stabilization in the country's economy – and a shift in wealth. China's society is rapidly changing. At the heart of this sweeping transformation is a new, powerful, and affluent middle class.
China's middle class population, if measured as a country, is larger than the entire U.S. populace. A decade ago, only 4% of urban Chinese households were middle class. Today, that share has swelled to more than two-thirds. By 2022, China's middle class number is forecast to be a whopping 630 million. That's three-quarters of urban Chinese households and 45% of the country's entire population, research firm McKinsey & Company reports.
The number of high-net-worth individuals in China jumped 14% to 643,000 in 2012 from a year earlier, data from Cap Gemini SA and Royal Bank of Canada reveals.
To be sure, China's thriving middle class wants all of today's material comforts. But mostly, they want to preserve their newfound wealth – and they don't trust banks.
This is bullish for gold prices.
Citing explosive growth among China's middle class, Jeffrey Nicholas told The Wall Street Journal, "In the next three to five years, we'll see gold well above its historic high."
We found a chart that shows just how important China will be to the gold market. In fact, we call it "The One Gold Chart Everyone Must See" – even if you aren't already investing in gold.
You can see it here – plus find out how to buy gold today.
- The Wall Street Journal:
The Case for Gold