Gold output down, but consumption sees surge

China's gold consumption surged more than 36 percent year-on-year last year to around 1,121 metric tons, an industry report said on Thursday.

Compared with the pre-COVID 2019 level, domestic gold consumption last year was some 12 percent higher.

But, domestic production dropped nearly 10 percent to about 329 tons, mainly due to stricter environmental regulations in the country, said the China Gold Association.

The trade body further said one more reason for the drop in domestic production was the temporary closure of some gold mines in Shandong and Henan provinces, two major gold production provinces.

Consumption of gold jewelry in China rose 45 percent year-on-year to 711 tons last year, with the level 5 percent higher than that of 2019.

Consumption of gold bars and gold coins rose 27 percent to 313 tons, which was 38.5 percent higher than that in 2019.

Gold purchases for industrial and other uses rose 15 percent to 96.75 tons.

Fluctuations in gold prices and the recovery of the Chinese domestic economy have fueled gold investment demand, while promotions have boosted sales, market insiders said.

The effective pandemic controls in 2021 and macroeconomic policies have supported demand, putting gold consumption on a recovery course, while the rapid development of the country's new energy industry and electronics industry has also encouraged purchases of the precious metal, said the association.

An analyst said domestic gold consumption has been on the rise since last year. As an expensive commodity, gold always commands safe-haven appeal. That has grown stronger amid recent geopolitical tensions, attracting more investors who see the yellow metal as a good investment option.

"Investment demand for gold could retreat this year, but demand from jewelry, industrial and central bank buying is likely to resurge," said Zhu Yi, a senior analyst for the metals and mining sector at Bloomberg Intelligence.

"Growth in reserve allocations for emerging and developing markets may drive up central bank buying this year, given the relatively low proportion of gold in foreign reserve holdings.

"Many gold miners face declining output as reserves shrink and given the falling ore grade."

Zhu also said the depletion of resources and strengthened environmental regulations in the country had led to the drop in gold production last year. Going forward, environmental concerns, falling ore grade and rising exploration costs may slow the growth of gold output.

Shandong province saw its gold output drop more than 50 percent year-on-year last year due to two gold mine safety accidents in the early part of the year.

Last year, Henan province strengthened regulation on small and medium-sized gold enterprises, leading to a drastic fall in gold production, industry sources said.