London, 25 August 2010

Whatever the reasons for China's massive household savings rate (a BIS paper last month suggested it's because household earnings are falling as a proportion of national income), the World Gold Council's Gold Demand Trends today shows private consumers putting ever-more money into physical gold.

Compared to household savings, in fact, revised estimates from BullionVault this morning put gold purchases in 2010 equivalent to almost 1.7% – over twice the level of five years ago.

This confounds Western analysts who forecast substitution – from gold jewellery and ornaments to consumer gadgets – as China's household wealth grew. Because gold demand, even for the kitschest gold ornaments, remains an expression of saving, not spending.

According to Peking professor Michael Pettis – and despite disposable income growth of perhaps 15% annually since 2000 – "Consumption growth is anaemic." Private Chinese gold demand, in contrast has risen by 26% annually in the last decade (Dollar value, WGC figures).

As for the People's Bank buying gold, Beijing's reserve managers are very much the junior player in China's gold market. In the 30 months between Jan. 2008 and June 2010 alone, according to WGC data, private households bought more gold (1057 tonnes) than the central bank reports in its entire hoard (1054 tonnes).

Ends --

Adrian Ash, Head of Research, www.BullionVault.com