The Chinese Gold Market Past, Present & Future Shanghai 26 May 2011 Agenda The PAST (1984-2010) The PRESENT (2011) The FUTURE (2012+) Unlocking the market potential Maintaining momentum Reaching new heights 2 Session 3 Albert Cheng 1
Key milestones of the China gold market reform The PAST (1984-2009) The PRESENT (2010-2011) 1984 Gold jewellery market opened up; monopolized by PBoC with the Centralized Purchase and Allocation System 1994 World Gold Council Beijing Office established The FUTURE (2012+) 2001 China enters WTO 2002 Shanghai Gold Exchanged (SGE) founded; Gold supply and jewellery market opened up to free market 2003 18K gold jewellery product category introduced in China 2006 Commercial banks permitted by PBC and CBRC to commence trading and selling of gold investment products to retail consumers 2006 First two-way trading gold investment bar introduced in China by China Gold & WGC 2007 Physical bullion bars trading began at commercial banks 2008 Gold futures contract launched on Shanghai Futures Exchange 2009 - Gold deferred trading (T+D) introduced at SGE 3 China s on the last step of reform to fully liberalize its gold market STEP 1 (1995-2002) End of the State gold monopoly Eliminate price control Establish Gold Exchange in Shanghai DONE! STEP 2 (2002-2005) Remove licensing system for retail, wholesale and manufacturing Permit individual consumers to invest in gold DONE! STEP 3 (2005 -??) Remove import and export control on gold (dependent on the timing of full liberalization of RMB currency exchange) IN PROGRESS 4 Session 3 Albert Cheng 2
In addition to regulatory changes, there are positive macro factors fueling robust gold demand in China Cultural affinity to gold High propensity to wealth preservation Growing wealthy & middle-class consumers 100+ billionaires, 300k+ millionaires # of middle-class increased by 140m from 96 to 08 High saving rate; large private financial assets US$2.8 trillion (RMB19 trillion) as of May, 2008 Improving retail product variety, selection & distribution By 2015, 20% of the global luxury market 5 As a result, China s total jewellery and investment gold demand tripled in the past decade, reaching nearly 640 tonnes in 2010 Tonnes 01-10 CAGR: 62% 01-10 CAGR: 9% Source: GFMS, WGC 6 Session 3 Albert Cheng 3
Agenda The PAST (1984-2010) The PRESENT (2011) The FUTURE (2012+) Unlocking the market potential Maintaining momentum Reaching new heights 7 Today, China is the second largest gold jewellery market and the 4 th largest investment market globally Jewellery Consumption Retail Investment Source: GFMS, WGC 8 Session 3 Albert Cheng 4
Growth momentum remains strong in 2011 Initial market feedback indicates that year-on-year demand growth has remained very strong in Q1 of 2011 (over 40%) Substantial growth for both the jewellery (over 20%) and the investment (over 120%) sectors so far in 2011 9 Demand continues to outstrip domestic supply; difficult for production to catch up in near term China gold demand and supply Tonnes ~360t shortfall made up by imports & recycled gold Widening gap between domestic demand & supply Increasing reliance on imports Influencing factor for China gold prices Domestic gold production expected to remain constrained in the near future Producers relatively fragmented Mining operations still largely sub-scale Low confirmed gold reserve in China; major investments needed for exploration Source: GFMS, WGC 10 Session 3 Albert Cheng 5
China gold prices have become more aligned with international prices Performance of gold prices in USD$ and Yuan/oz Source: Bloomberg 11 Key gold jewellery trends Pure Gold still dominates But 18K gold has gained meaningful share Proliferation of higher quality products Trendier designs Themed product collections Increasingly sophisticated marketing Integrated campaigns Creative use of online media Aggressive retail expansion by major retail brands China Gold, Chow Tai Fook, etc. Increasing penetration into lower-tier markets 12 Session 3 Albert Cheng 6
Key gold investment trends Investment gold bars in 10g, 50g, 100g remain the core products Increasing varieties in the market Commercial banks have become an important channel Extensive branch network; wide consumer reach Better trained, professional sales staff The China retail investment market still ramping up Consumers still building up stockpile Increasing product innovation e.g. ICBC Gold Saving Account (GAP) 13 Agenda The PAST (1984-2010) The PRESENT (2011) The FUTURE (2012+) Unlocking the market potential Maintaining momentum Reaching new heights 14 Session 3 Albert Cheng 7
Key factors influencing future gold demand in China Continued inflationary pressure in the near-term Risk of prolonged and sustained de-valuation of the US dollar Increasing uncertainty in the domestic stock and real estate markets Potential introduction of Gold ETF in China? Higher allocation of the gold reserve by China s central bank? 15 China s gold reserve as % of total reserve is comparatively low Source: IMF IFS, WGC 16 Session 3 Albert Cheng 8
Still ample room for long-term gold consumption growth in China Global gold consumption intensity Substantial demand expansion if China s per capita consumption rises to Taiwan s level Note: Demand excludes central bank purchases Source: GFMS, IMF, WGC 17 藏金于民 Store gold among the populace 18 Session 3 Albert Cheng 9
Thank you World Gold Council Unit 3504, 35th Floor, Plaza 66, Tower 1 1266 Nanjing Road (West) 200040 Shanghai, People s Republic of China T +86 21 6289 2111 F +86 21 6289 3222 W www.gold.org Session 3 Albert Cheng 10