China’s Gold Demand Will Continue to Recover in 2021 After the 2020 Slump
During the last months of November and December, there was a recovery in demand for physical gold in China. Although it has not avoided the year-on-year decline of 2020, we can face 2021 with optimism.
In its latest Market Update report dedicated to China’s gold market during 2020, the World Gold Council analyzes the evolution of the local currency price and the variation in demand.
The report’s data reveals that, throughout 2020, the price of gold in the local currency, rose 14.6%. That was compared to 24.2%, which was the revaluation of the precious metal in dollars.
The explanation for this difference is that the Chinese economy received the pandemic’s impact before the rest of the world. It is why it also began its recovery process earlier. This allowed the renminbi to rise again, affecting the local price of gold.
On the other hand, for most of the past year, the spot price of gold in China was $17 an ounce below the LBMA fixing price. That is compared to an average discount of $5 an ounce over the past decade.
Analysts from the World Gold Council explain that the main factor responsible for this increase in the discount is the fall in demand for physical gold registered in China. That is because it is the world’s largest consumer of this metal.
The New Year celebrations in China supports the demand for the precious metal
Conversely, when the demand for gold is at a high level, all other things being equal, gold becomes scarcer on the market. As a result, its price rises, reducing the discount.
Despite this, the data regarding the demand for physical gold has improved as the end of the year approached.
Thus, gold withdrawals on the Shanghai Gold Exchange and business volumes for gold of 999.9 purity last December were 30% higher than November.
One of the reasons for this is the proximity of the New Year celebrations in China at the beginning of February. Traditionally, they give gold. For this reason, in previous months, buyers tend to go ahead and acquire gold.
The report reflects that the demand for physical gold has been recovering in China since the first quarter of 2020. In that period, consumption was 61% lower than in the same quarter of 2019. In contrast, in the third quarter of 2020, the year-on-year difference had been reduced to just 12%.
Looking ahead to 2021, the prospects for gold traders in China are optimistic. That is according to analysts at the World Gold Council. This optimism is due to the progressive recovery of the country’s economy.
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