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(Kitco News) - China’s total annual gold demand topped 700 metric tons for the first time ever last year and is expected to keep rising over the next decade, said the World Gold Council on Thursday.

The report said China is the second-largest gold-consuming market in the world.

The WGC, a market-development organization for the gold industry, included a separate section on China in the quarterly supply/demand trends report. Data was compiled by the consultancy GFMS.

In the spring of 2010, the World Gold Council put out a report saying it anticipated Chinese gold demand could double in the next decade.

“With the sustained momentum in Chinese demand, this target will probably be achieved in a shorter time scale,” said Eily Ong, investment research manager with the WGC, in an interview in conjunction with release of the report.

In 2010, gold demand grew by 32% despite a concurrent 25% rise in the annual average local currency gold price, the report said. “For the first time, annual gold demand (jewelry, investment and technology combined) surpassed the 700-ton mark.”

China’s gold demand has grown by an average of 14% per annum since deregulation of the market by Chinese authorities in 2011, the WGC said.

Much of the demand is due to concerns about inflation, as reflected by a series of monetary-tightening measures undertaken by Chinese authorities, Ong said. Despite these efforts, she pointed out, the country’s April Consumer Price Index rose 5.3%, down only a single percentage point from the prior month.

Further, China’s market is still “relatively new” since it has only been a decade since deregulation, meaning potential for more “catching up” in demand compared to Western markets, she said.

For the 12 months ending in the first quarter, the report listed “Greater China” combined jewelry, bar and coin demand of 745.5 tons. Demand for China was listed at 714 tons, Hong Kong at 23.5 and Taiwan at 8 tons.

Jewelry is “by far the most dominant category” of the Chinese market, accounting for almost 64% of all gold demand in the country in 2010, said the report. Twenty-seven percent came from investment and the remaining 9% from technology.

Chinese gold-jewelry demand has more than doubled in the last seven years to 451.8 tons in 2010 from 224.1 tons in 2004. For the first quarter of 2011, China’s demand jumped 21% year on year to a quarterly record of 142.9 metric tons, the report said.

China’s annual gold investment demand at the end of 2010 was 187.4 tons, up 71.1% from the previous year. And in the first quarter of this year alone, the country’s investment in physical bars and coins was 90.9 tons, nearly half of the full-year level for 2010.

“Near-term inflationary expectations and rising income levels are likely to support the investment case for gold as an asset class, especially given that Chinese consumers are high savers and are looking to gold to protect their wealth,” the WGC said.

The WGC also characterized the longer-term picture for Chinese gold demand as “compelling,” given the increasing incomes in the world’s most populous country.

By Allen Sykora of Kitco News; asykora@kitco.com

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