May 17, 2012

China Set To Topple India As World’s Largest Gold Market

Gold Demand In China Expected To Leap Nearly 30 Percent In 2012

China is already the world's largest producer of gold

Driven by a host of factors, including rising incomes, tradition, a more unpredictable overall economic environment and preference for portable assets, gold demand in China is expected to rise up to 30 percent this year, making it the world’s largest gold market and toppling long-time leader India. According to Albert Cheng of the World Gold Council, Chinese gold demand hit a record high in the first quarter of this year, and may rise to anywhere from 900-1,000 tons this year, up from 769.8 tons last year. Conversely, Indian demand this year is expected to see a drop this year, from 800-900 tons, down from last year’s 933.4 tons. As the BBC notes, Indian demand was hit by a rise in the import duty on gold and a new excise duty on gold jewelry, which saw jewelers go on strike and eventually force the government to drop the measure.

This rise in Chinese demand is a welcome development for the gold industry, which has seen a drop in prices since last year as investors have turned to the US dollar as a relative safe haven amid concerns in the Eurozone about Greece potentially quitting the Euro. As the World Gold Council wrote in a report this week, global gold demand dropped 4.6 percent to 1,097.6 tons in the first quarter of this year. Gold prices, as of yesterday, sat at US$1,526.97 an ounce, the lowest level since last December.

As Cheng of the World Gold Council said yesterday in Singapore, “We are confident China will become the largest source of demand for gold this year,” adding, “Over the next two to five years, China and India will go neck to neck and may account for more than 50 percent of world demand.”

From Bloomberg:

Demand in China totaled 255.2 tons in the three months to March 31 from 232.5 tons a year earlier, the council said in the report. Investment demand gained 13 percent, while jewelry demand increased 7.9 percent to 156.6 tons, making China the world’s largest jewelry market for a third quarter.

The council’s outlook for increased consumption in China this year contrasts with the view from Lao Feng Xiang Co., the mainland’s biggest gold-jewelry maker, which said this month the country’s demand growth may stagnate in 2012.

“The increasing wealth of the middle class is very important in China,” Cheng said. “In the past 10 to 15 years, it had reached first- and second-tier cities such as Beijing, Shanghai and Hangzhou. We expect such wealth to reach 600 million people in third-tier cities such as Dongguan, Zhuhai, Mianyang and Tangshan.”

A traditional investment and hedge against inflation, gold has been a popular investment option in China for centuries. (With the notable exception of much of the 20th century.) Already, growing demand in China has benefited companies working in the gold jewelry field, with China becoming the world’s largest market for gold jewelry in the second half of last year. By 2015, China will have become the world’s largest luxury market, and the country’s appetite for gold bars, coins and other gold-backed products — as with most luxury categories — has been pushed by pragmatic concerns about rising inflation, a limited number of investment options, and a strengthening yuan.

Business & Finance / Investment / Lifestyle
Tag: demand, gold, hedge, india... , More
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