How China Became the World's Largest Gold Consumer and Producer
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China is a powerful force to be reckoned with. According to Safeguard Global, the country has the second largest economy based on its gross domestic product, which stands at $14.7 trillion in 2024.
China's role as an economic powerhouse is particularly evident through the lens of the global gold market, in which the nation plays a substantial role. China is the largest producer of gold in the world, and there is also significant demand within the country for gold jewelry and other products, which drives consumption.
What's driving China's role in the gold market? There are several factors, including cultural traditions, manufacturing needs and concerns about investments.
China's history with gold
China has a long relationship with gold. Its use in the country dates back to the Han dynasty as early as 206 BC, and it's since been used as currency, for making jewelry and even as part of worship.
In 1978, when China re-entered the international economy and resumed trade with other countries, the gold market shifted. China transformed into an industrial powerhouse, and gold played a major role; along with jewelry, gold is frequently used in the creation of electronics, medical devices and in the automotive industry.
In 1983, China allowed its citizens to own gold — private gold ownership was previously prohibited — and it created the Shanghai Gold Exchange, major milestones for the gold industry. Those changes began China's transition to a gold superpower, as the government accumulated its gold reserves and gold mining within the country accelerated.
China and gold: its impact today
China is a huge presence in the gold market for both production and consumption:
Production
China is responsible for about 11% of global gold production, making it the largest producer of gold in the world. In fact, since it overtook South Africa for the lead in 2007, it has dominated the gold production market.
According to Mining Technology, there are over 1,300 gold mines in the world, and China operates 117 of them. In 2023, China produced 370 tons of gold. To put that in perspective, that's more than double the gold production of the U.S.
The five largest mines in the country include:
- Shaxi Copper Mine in Anhui
- Yixingzhai Gold Mine in Shanxi
- Sanshandao Gold Mine in Shandong
- Jiaojia Gold Mine in Shandong
- Dexing Mine in Jiangxi
Gold is an important part of China's economy, particularly in the manufacturing industry. China's chief exports are electronics, machinery and vehicles — all segments that require gold.
The Central Bank of China has been buying gold to bolster its reserves, moving its reserves away from traditional assets like U.S. Treasury debt. Its accumulation of gold has helped drive the price of gold.
Consumption
In China, gold was traditionally a common gift, particularly for brides, new parents and for the Lunar New Year, which helped drive its jewelry market. However, as the country has become richer and its citizens more wealthy, purchasing gold for personal use or investments is increasingly common as a status symbol.
Right now, China is facing some issues with deflation, meaning prices across the economy have dropped. Combined with a volatile stock market and difficult real estate market, gold can be an appealing alternative for investors.
Gold as an investment is particularly popular among young adults interested in alternative assets. Gone are the days when investors needed thousands of dollars or Chinese Yuan to purchase gold; today, Chinese investors can buy "gold beans" — as the name implies, small nuggets of gold — that cost less than $100 per bean.
Gold beans have gone viral on Chinese social media platforms like Weibo, and mainstream jewelry stores have addressed the trend by selling gold beans in glass jars in their stores. In fact, Chinese consumers between the ages of 18 and 24 are more likely to purchase pure gold than any other age group, according to a report by the Chow Tai Fook Jewellery Group.
The increased demand for gold as an investment — and the availability of smaller, more accessible gold for investing — played a major role in China's gold rush, with gold premiums reaching a then-all-time high in 2023.
Outlook for China's gold market
Although the gold industry in China is still booming, there are some signs it's cooling down. Record-high gold prices may have affected consumers, as gold jewelry sales dropped significantly in October 2024.
China saw a slight decrease in gold production; for the first three quarters of 2024, its total production dropped by -1.17%.
If gold prices remain high, that could continue the downward trend of jewelry sales, but it could increase the demand for gold for investments.
How China's gold market can affect you
Because of China's significant presence in the gold industry, many economists believe that gold prices and demand are affected not by the economy, but by Chinese investors themselves. With so many Chinese investors and consumers purchasing gold, it has markedly increased demand for the precious metal, which subsequently drives up prices.
If you're looking to invest in gold, China's gold industry and its outlook is encouraging. However, it's always important to diversify your portfolio so your investments aren’t concentrated in a single asset class. If you do invest in precious metals, investing in traditional securities — such as stocks, bonds, mutual funds or ETFs — can give you a well-rounded portfolio.
