China likely to 'dominate' global gold pricing in future

Beijing (Mar 18)  As China's financial exchanges continue to grow and expand the country is likely to "dominate" global gold price discovery in the future, ANZ said Wednesday in a research note.

"Beyond its role as the world's largest producer and [a top] consumer of physical gold, we believe China will eventually dominate the price discovery process too, as Asia's financial centres gradually open up. There is no reason why Shanghai should not become a major centre for gold trading provided the appropriate institutional and legal reforms take place," the Australian bank noted.

China was overtaken as the world's number consumer in 2014 by traditional top market India.

"As Asia will comprise over half of the global economy by 2050, the rise in regional incomes will support the demand for gold investments. China and India are already the world's largest gold consumers and incomes still have a long way to rise before reaching developed-world levels," ANZ said.

The bank believes that Central banks are likely to continue adding to gold holdings over the long term.

This has been a theme in developing countries for a number of years.

"Most of the buying will come from emerging market central banks as they move closer to the level of developed world holdings. The supply side is also supportive of prices as gold mines are unable to expand rapidly. Prices too far below $1,000/oz are unsustainable in the long-term," the bank added.

By 2025 ANZ sees the gold price rising above $2,000/oz.

"This is our central-case for the gold price. While the near-term could see prices trade only marginally higher over the next few years, we believe the combined effect of greater demand from investors and central banks will see gold prices rise materially over the long-term," it added.

Gold was trading sub $1,150/oz Wednesday, spot bid at $1,147/oz as of 1022 GMT.

Source: Platts