Gold purchases set to rise on safe-haven appeal

Demand for gold jewelry is set to recover in China this year after a 27.45 percent decline last year as the yellow metal finds increasing acceptance as an investment asset, experts said.

Gold purchases are slated to rise this year as lower global interest rates will continue to spur demand, said Zhu Yi, a senior analyst for the metals and mining sector at Bloomberg Intelligence.

Zhu's remarks came after the China Gold Association said gold purchases in the country fell by 18.13 percent on a yearly basis to 820.98 metric tons last year. Jewelry purchases fell by 27.45 percent on a yearly basis to 490.58 tons last year, while sales of gold bars and coins rose by 9.21 percent during the same period to 246.59 tons.

Gold purchases for industrial and other uses fell by 16.81 percent from a year earlier to 83.81 tons, said the association, adding that though some companies had reported better sales through online sales, it could not compensate for the decline in store sales.

Gold purchases have gradually recovered, thanks to the country's effective COVID-19 epidemic controls and economic recovery, after a 48.2-percent slump in the first three months of last year, the CGA said. Demand for gold bars and coins rose by 50.91 percent on a yearly basis during the second half of last year, as a looser monetary policy and more volatile gold prices increased private investor interest in the yellow metal.

According to the World Gold Council, an industry organization, gold investment continues to be well supported by the interest rate environment this year, although uncertainties still exist due to the lingering COVID-19 pandemic.

The WGC expects China's gold demand to revive further this year, as the economic recovery is likely to continue and stimulation of consumer markets is a priority for policymakers.

Due to the lingering portfolio risks and potential inflation resulting from measures to counter the COVID impact, the WGC believes there is potential for higher demand across the world, especially in emerging markets such as China.

The economic recovery is supporting a strong demand rebound in these countries, said Louise Street, a senior markets analyst with the WGC.

Zhu from Bloomberg said gold output in China may recover this year as mine production was disrupted last year due to the epidemic.

According to the China Gold Association, the country's gold output came in at 365.34 tons last year, down 3.91 percent on a yearly basis. Zijin Mining, one of China's biggest State-owned gold producers, is expected to increase gold output this year, Zhu said.

Gold prices could also continue to find support in 2021 from the safe-haven appeal due to geopolitical tensions amid a low-to-negative interest-rate environment and expanding global money supply, she said.

According to Zhu, since China has vowed to peak its carbon emissions by 2030 and achieve carbon neutrality before 2060 through wide-ranging environmental protection efforts, some small-scale miners may be forced to cease operations, while major miners like Zijin Mining and Shandong Gold will increase the spending on environmental protection.