China could continue to support gold prices and related exchange traded funds over the next few years due to the country’s cultural affinity for the precious metal, rising middle class and growing preference for bullion investments.
According to the World Gold Council, China’s annual demand for gold could surge 20% by 2017, the AFP reports.
The WGC estimates that annual Chinese demand for gold in jewellery, coins and bars will rise to “at least 1,350 tonnes by 2017,” compared to the country’s record consumption of 1,132 tonnes last year.
China is now the largest consumer of gold, overtaking India in 2013.
On the heels of plunging gold prices last year, global demand for gold surged to its highest in 16 years as consumers in Asia and the Middle East took advantage of the low prices.
While the WGC warns of a possible slowdown due to China’s shift to a consumer-based economic model, the group believes a domestic consumption based model will bolster jewellery demand.
“Although the risks associated with this economic transformation should not be underestimated, on balance this process should result in a considerably higher level of consumer spending, which ought to favour the jewellery sector,” according to the WGC.
Additionally, China’s demand for gold will increase due to the high levels of savings and restrictions on other investments.
“There is a huge groundswell of people becoming wealthier, that have more money to spend on jewellery and more savings to invest,” Alistair Hewitt, WGC market intelligence manager, said in the article. “For many people, gold is the preferred form for savings amid volatile stock markets, overvalued property and low interest rates being offered by banks.”
COMEX gold futures are now trading a little over $1,300 per ounce.
There are a few ways for investors to track gold prices through physically backed ETFs. The SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) are backed by gold bullion stored in vaults. The ETFs have all gained a little over 10% year-to-date. [Gold ETFs Could Surprise With Big Rally]
SPDR Gold Shares
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Tom Lydon’s client own shares of GLD.