GOLD ANALYSIS

Record gold output could put 2010 China consumption at 600 tonnes

Chinese 2010 gold output is estimated by government sources at around 340 tonnes for 2010, a new record, suggesting the country's total consumption may have reached close to 600 tonnes.

Author: Lawrence Williams
Posted: Friday , 07 Jan 2011

LONDON - 

China, already the world's largest gold producer, looks to have further increased its mine production in 2010.  According to the country's Ministry of Industry and Information Technology, it is expected t to reach a new record of around 340 tonnes or more  - a more than 8% increase over the 2009 figure of 319,980 tonnes.  This is now the 6^th successive year in which the country has raised its gold output.

Actual output for the first 11 months of the year, according to official figures, was 308.39 tonnes, up 9.2% on the same period in 2009.

Given that China also imported a record tonnage of gold this gives yet another indication of the growing importance of Chinese demand on the global gold sector - but whether this is due to Central Bank accumulations (unreported) or investment demand, is unknown - most likely a combination of the two.  Overall China imported  209.7 tonnes of gold in the first 10 months of 2010 - up a massive 500% on the previous year's imports over the same period.  With the end of the year traditionally seeing a surge in public gold buying - and anecdotal evidence suggests this has been the pattern this year too -  it looks as if the country's overall gold consumption ( a figure reached by adding mine output to imports) in 2010 could reach close to 600 tonnes or more - equivalent to around a quarter of global mine production.

China is seen as needing to raise its Central Bank gold reserves to percentage levels near those of major Western countries (which would absorb a substantial amount of the precious metal) - but is also seen as being extremely cautious about releasing data on any reserves rise.  In some analysts' views this is because an overt increase in China's gold reserves would have the effect of stimulating substantial price increases in the yellow metal.  While the country is wrestling with huge US dollar-related surpluses in its reserves it is said to see the maintenance of a relatively steady, but firm, gold price while buying as its best way of reducing its dollar reliance and building up its gold proportion without paying excessive prices to do so.  It is already seen as taking its own mine production into government coffers, while its state banks and institutions have been advertising the benefits of precious metals ownership to its general public too.

All in all this makes China a very substantial player in the global gold market with the capability of controlling the gold price if it so wants to given the trillions of dollars in its reserves.  It is currently gaining ground on India as the world's biggest importer of gold and many think China will surpass India in this respect over the next couple of years - particularly given the Indian nervousness about buying into a rising gold price, a factor which does not seem to be impacting the Chinese investor so far.