Demand for gold in China surges as holiday season approaches

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The performance of gold may not have been as strong as stocks in 2017, but that may change as China takes on a bigger role in the global production and consumption of gold.

China has been the world's largest gold market for the past five years. According to data from the China Gold Association, the country bought almost 1,100 tons of gold last year, up 9.4 percent from 2016.

Demand for gold has been strong in most sectors. The sale of gold jewelry jumped more than 10 percent in 2017 while demand for gold bars were up more than 7 percent. The sale of industrial-use gold surged over 19 percent to over 90 tons. Much of the demand came from second and third-tier cities on the back of their strong economic performances and rising home prices.

The upcoming Chinese New Year and volatility in the equity market were other reasons behind the steady gold prices. According to data from China UnionPay, consumers spent 20.4 percent more on gold last month than in December with the average transaction topping 6,500 yuan, which could be translated into 17.7 percent monthly growth.

People from Beijing, Jiangxi and Shanghai spent more than other regions with the the average gold purchase topping 8,500 yuan. The data also showed that nearly a quarter of China's gold buyers came from Guangdong, Shandong and Henan provinces. Jewelry shop operators expected the trend to continue.

However, analysts say that supply is lacking while the demand is strong. Data shows that China produced about 426 tons of gold in 2017. That was 6 percent lower than a year ago and the first production drop since 2000. Some analysts believed the shortage in supply would provide some support for gold prices.