SINGAPORE, Nov 30 (Reuters) - Gold industry officials gather this week in Shanghai to seek ways to satisfy the fast-growing investment demand from China's investors, as the country gears towards overtaking India as the world's largest gold consumer.
The 5th China Gold and Precious Metals Summit is set to take place in Shanghai on Thursday and Friday. China's gold demand is expected to be 500 tonnes this year, and to rise to around 600 tonnes in 2011, with investment demand rising quickly as inflation-wary investors eagerly seek alternative ways to store their wealth.
"The investment sector has grown significantly in the past three to four years," said Albert Cheng, Far East Managing Director of the World Gold Council, "Looking at ten years ago, the investment offtake was three to four tonnes. In 2009 it was 105.5 tonnes."
Cheng said this year's investment demand, calculated from sales of physical gold bars, could jump 50 percent from a year earlier. Total gold demand is seen growing about 20 percent in 2010, and at a similar rate next year, he added.
"Investment demand will continue to grow, and jewellery demand is not showing any sign of reversal. Next year it is going to be very robust."
The record-breaking gold price rally in the past few months has encouraged more investors, who have been turned off by a volatile stock market and a property market that has been the target of government control, to precious metals.
Spot gold hit an all-time high of $1,424.10 on Nov 9, at the climax of its record-breaking rally, but has since retreated in an overall depressed commodities market pressured by the euro zone's debt problems and China's threat to further tighten policy.
LACK OF INVESTMENT TOOLS
Gold investors in China today can buy gold coins and bars, paper gold products from commercial banks, and trade on the Shanghai Gold Exchange and the Shanghai Futures Exchange.
But the existing investment tools are not enough to satisfy demand, analysts said.
"The existing channels and products are not very easily accessible for ordinary investors. The development of investment products has been lagging behind rapid growth in demand," said Shi Qinghe, an analyst at state-backed research firm Antaike.
Other investment tools for precious metals under discussion include silver futures, and trust products, Shi said. Currently the Shanghai Gold Exchange trades gold, silver and platinum, and the Shanghai Futures Exchange trades gold. More accessible tools such as exchange-traded funds, or ETFs, are being studied and discussed, but regulatory hurdles would take time to cross, analysts said.
For example, ETF would have to clear two regulatory agencies - China Securities Regulatory Agency, which oversees the equity market, and China's central bank, which controls the country's gold market.
"A lot of people are studying it, but nothing is on the horizon," said Cheng of the WGC.
China's Lion Fund Management Co on Monday became the first fund house to win approval for a fund which invests in overseas ETFs.
