CHINA March 27 2014 1:52 PM

SHANGHI (Scrap Register): Chinese gold demand experienced a very strong 2013 by nearly every measure, setting a new record high with opportunistic buying on price dips. The question is: can Chinese gold consumption continue to grow, and what is driving it?

Barclays thinks the overall fundamental trend remains intact and expect growth to continue to continue, albeit at a slower pace year-on-year.

Much of the gold imported by China to feed this voracious appetite has come from Western vaults as destocking and outflows from gold ETPs. Given that Chinese buyers prefer to hold physical gold, the flow of gold from the West to the East will likely remain a theme.

Even without any new official figures on central bank holdings, Barclays bottom-up fundamental analysis shows growth across jewellery and investment-related bar and coin demand. As per Barclays the demand will continue to grow, albeit likely at a slower pace than recently.

Barclays has revised our gold price forecast for 2014 up to $1250 an ounce from $1205 an ounce,after taking into account gold’s year-to-date performance.

“We have not changed our overall view and still believe that its next move will be lower. Palladium has similarly outperformed so far this year, hitting several year highs, due to possible supply concerns. However, we still expect market fundamentals to push palladium even higher by year-end,” Barclays added.

This year, China became the world’s largest gold consumer, building on 2013’s blockbuster year. But since much of the strength in buying in 2013 can be attributed to price-sensitive buying, the question is, can Chinese gold consumption continue to grow? In our view, the answer is yes, albeit at a slower pace year-on-year, which we address in this month’s focus, said Barclays.