Let's look at the statistics on the Chinese gold market. The average annual growth in jewelry demand since 1990 is 17%. The country accounts for 30% of the world market for these products. Investment demand for physical precious metals has increased over the past 6 years from 12 to 199 tons. In addition, 6 new gold exchange-traded funds have emerged in China in 2020 alone.
Since 2007, the country has mined more yellow metal than anywhere else in the world. The volume of paper gold trading on the Shanghai Gold Exchange (SGE) for 17 years of its existence amounted to about 69 thousand tons, which is a world record. Given these data, it is not surprising that China has a significant impact on the precious metal quotes.
Economist Dmitry Dubrovin from RANEPA writes about this in his work ("Innovations and Investments", No. 3, 2020).
Studies have shown the following dependencies:
- An increase in the price of gold by one unit reduces the demand for jewelry over the same period by the same amount;
- When the price of gold increases by one unit, the demand for bullion and coins in China increases by two units;
- When the Shanghai Stock Composite index falls by one unit, the demand for gold bars and coins in China increases. Risk hedging is another important reason why Chinese consumers buy gold bars and coins.
Thus, the world gold market (both in physical terms and in the form of investment instruments) becomes increasingly dependent on the dynamics of the economic well-being of the Chinese economy.