China's demand for gold jewelry may increase by about 20 percent this year as rising personal incomes help it to race ahead of the United States as the world's second-biggest market, researcher GFMS Ltd said yesterday.

Gold use in jewelry in China jumped 24 percent from a year earlier to 221 metric tons in the first nine months, GFMS analyst Veronica Han said by phone from Beijing, citing data compiled for the World Gold Council. That compares with 515 tons in India, the biggest consumer, and 165 tons in the US.

Increased jewelry purchases by consumers in China and India, the world's fastest-growing major economies, may help to support the price of gold, which reached a 27-year high of US$845.84 an ounce on November 7 and is headed for its seventh annual gain.

"More economic development in China and a relatively higher savings ratio than that of India should in the long term drive gold demand in China," Stephan Schlatter, executive director for metals markets in Asia at UBS AG, said.

A stock market and property boom helped to boost disposable incomes among urban households in China by 13.2 percent in the first nine months of this year when adjusted for inflation, said Bloomberg News. Retail sales rose by 18.1 percent in October from a year earlier, the fastest in eight years, the statistics bureau said November 14.

"China is poised to become the world's second-largest jewelry market for gold this year, overtaking the United States and coming in No. 2 behind India," Philip Klapwijk, executive chairman of GFMS, said by phone from Parati, Brazil. "I would expect it to grow further" in 2008, he added.

"We expect gold use in China this year to greatly exceed last year's level, with rising standards of living and some policy changes to encourage gold holdings by the public," Hou Huimin, vice president of the China Gold Association, said, without giving details.

Even "with less-aggressive growth in the fourth quarter," Chinese sales of gold are expected to increase by about 20 percent in 2007, GFMS's Han said. The GFMS estimate of gold use in jewelry excludes supply from scrap.

"Upgrading of the retail environment and greater product varieties" helped gold demand, Klapwijk said. "The Year of the Pig also helped." This year's lunar New Year, the Year of the Golden Pig, is deemed auspicious for gold purchases.

"Almost everything has gone right for gold jewelry demand to pick up," said Klapwijk. "You had a perfect environment."

(Shanghai Daily December 5, 2007)