China gold purchases to cool after 2013 surge

China's gold consumption is expected to climb to more than 1,000 tons this year, though the trend is not sustainable and could drop below this level from 2014, the country's biggest gold producer said Monday.

Meanwhile, gold output this year from China, the world's top producer, is set to climb about 7 percent to another record high of 430 tons, Du Haiqing, vice general manager at China Gold Group Corp, said at an industry conference held in Tianjin.

Gold demand from China has surged by more than half in the first six months of the year as sliding prices of the precious metal lured buyers, reinforcing -expectations that China will overtake India as the top consumer this year.

India's consumption this year is -expected to be lower than last year's 860 tons as the government is trying to curb imports and reduce its trade deficit.

Gold consumption in 2012 was 832.18 tons, according to data from the China Gold Association.

But this year's consumption was "abnormal," as a sharp drop in prices in April has sparked a buying frenzy, said Du. In April, gold witnessed its biggest two-day fall in 30 years. The metal has recovered after dropping below $1,200 in June, but is still subject to volatile trading and negative sentiment.

"Consumption will gradually cool down. The current consumption level of over 1,000 tons will not be sustained and will fall to normal levels as consumers become more rational."

Du forecast China's gold production would hit 430 tons this year, compared with 403 tons in 2012.

China's central bank is planning to increase the number of firms allowed to import and export gold and also ease restrictions on individual buyers of the precious metal, according to a draft -policy document.

Du also called on the central government to review its gold mine licensing system, where lax rules have allowed prospectors to buy and speculate on tenements without developing the -resources.

This has driven up costs for producers as they are forced to purchase mining rights from private investors at an inflated price.

"China's threshold for mining rights is too low. Any company, regardless of whether it has exploration ability, can have mining rights," Du said, adding that around 70 percent of gold -tenements were in the hands of private investors.

After a decade of heavy spending on exploration and new projects, gold miners around the world are seeking ways to cut costs after a sharp fall in the price of the precious metal has put the industry under intense profit pressure.

The average cash production cost for China Gold's listed unit, China Gold International Resources, stood at $912 per ounce in the first six months of 2013, up from $907 from year ago, according to the firm's first-half financial results.