The rise of China has been a major driver of the demand for gold.
While gold has little industrial use, it holds profound cultural significance for the Chinese.
The biggest driver of consumer demand in China is clearly one event: the wedding.
“It is estimated that close to 40% of Chinese 24 carat jewellery consumption is related to weddings,” note the analysts at the World Gold Council. “In the third and fourth tier cities this percentage is greater.”
24 carat jewellery accounts for 85% of gold jewellery demand in China.
“‘Pure gold’ jewellery is a unique product that fulfils the requirements of both adornment and investment, and research confirms its appeal to young consumers,” said the analysts.
Here’s some more colour:
The growth in the number of people of marriageable age together with, in general, increasing wealth has boosted sales of jewellery for traditional wedding sets and rings. Typically a three-piece wedding set, known in Mandarin Chinese as jiehun san jing might consist of a necklace/ pendant/bracelet, ring and earring combination. Bracelets are especially popular in southern China where wedding sets are also often five- rather than three-piece. The number of marriages, according to the mainland’s official data for China (which includes figures for Hong Kong, Macao and Taiwan) has increased by 60% since the middle of the last decade to 13.2 million at the end of 2012.45 This has undoubtedly made an important contribution to growth in demand for 24 carat gold over the last decade (Chart 12).”
China, however, faces an unusual demographic hurdle that is bad news for weddings.
“Women are bearing only 0.71 girls over their lifetime, well below the replacement figure of just over unity,” noted the analysts at Nomura. “In 2010, there were 51m more men than woman in the country. The sex ratio among newborns is 120 boys for every 100 girls, the highest in the world. At this rate, there will not be enough brides for as many as one-fifth of today‟s baby boys when they get to marrying age, heightening the risk of social tensions.”
WGC analysts acknowledge this concern, but note that this will be a bigger issue for demand in the 2020s.
For now, expect demand and weddings to continue to rise through at least 2017.