BEIJING, July 20 -- China's gold production and demand are forecast to continue rapid growth over the coming years as local incomes rise and the precious metal is more widely purchased for jewelry and investment.

    According to the Gold Survey 2007 published by Gold Fields Mineral Services Ltd (GFMS), a London-based precious metals consultancy, though global gold output dropped slightly last year, China's production of the precious metal increased 8 percent year-on-year to hit 247 tons and overtake Australia as the world's third-largest gold producer.

    The National Development and Reform Commission (NDRC), China's top industry regulator, said that the country produced 122 tons of gold in the first six months of this year, up 15 percent, from the same period a year earlier.

    NDRC said in February that the nation's 2007 gold production will reach 260 tons, which would be another 8 percent annual increase.

    The NDRC projected that total gold production in China will be 1,300 tons from 2006 to 2010.

    Philip Klapwijk, executive chairman of GFMS, said that the surge in China's gold output is stimulated by robust domestic demand and rising global prices.

    China is now also the world's third-biggest gold consumer, following the United States and India. Demand for gold totaled 259.6 tons last year, up 3 percent from 2005.

    Demand in 2006 included 244.7 tons for jewelry, up 1 percent, and 14.9 tons for investment, an increase of 27 percent.

    "Consumer demand for gold in China will continue to grow this year following consecutive increases over the past four years," said Klapwijk, due to rising disposable incomes, the Chinese tradition of valuing gold and the further opening up of the domestic gold market.

    The World Gold Council, a London-based marketing organization funded by the world's leading gold miners, earlier forecast that consumer gold demand in China will reach 600 tons annually in coming years.

    Albert Cheng, managing director of the World Gold Council Far East, said that jewelry consumption is still the dominant use for gold, taking 90 percent of the market.

    Yet GFMS's survey showed that Chinese interest in gold bars and coins, especially commemorative ones for China's Year of the Pig and 2008 Beijing Olympic Games, is very promising.

    "They (the gold bars and coins) are regarded as safe and reliable investment tools, amid fluctuations in the nation's stock market and rising property prices," said Sun Zhaoxue, head of the China Gold Association. He said he believes individual gold investment will grow faster than jewelry purchases.

    Growth in both gold production and demand in the country is also spurred by rising prices on international markets.

    Official statistics show that the average price of aurum-99.99 gold in China jumped by 32.35 percent, or 37.95 yuan a gram, last year over 2005.

    Domestic gold prices began fluctuating in line with changes in the world market in 2001 when the Shanghai Gold Exchange, China's sole national bourse for the metal, was formed in a move to open up market for the precious metal.

    Trading volume at the exchange, where there are 149 members making spot transactions in renminbi, increased by 37.81 percent last year over 2005 to a total of 1,249.3 tons.

    The survey forecasts that world gold prices will exceed $700 an ounce by the end of this year compared with the current $640 to $680, and might rise to $850 an ounce next year.

    (Source: China Daily)