China trumps India to lead oriental gold rush

ASIA BRIEFING:THERE ARE strong cultural and religious reasons why India has traditionally been the world's biggest buyer of gold, but China is poised to overtake the subcontinent this year as its biggest source of demand.

Between them, China and India account for more than half of all the gold bought globally.

Inflation fears and a dearth of useful investment outlets means China looks set to be the biggest buyer of gold in 2012.

Gold consumption rose 7 per cent to a record 255.2 metric tonnes in the first quarter, despite the global slowdown, which puts China on track to overtake India this year, the World Gold Council said last week. China is already the number one producer of gold.

Demand for bullion in China could jump by as much as 30 per cent this year to between 900 and 1,000 metric tonnes, from 769.8 metric tonnes last year.

The character of gold buying in India and China is very different.

Indians buy gold for cultural, often religious, reasons, while in China it’s basically seen as a safe haven and a solid bet. “Investors [in China] remain wary of high inflation rates and property market restrictions continue to drive demand,” the council said.

The rise of China’s middle class is helping support demand for gold, although growth in Chinese jewellery demand is set to remain moderate as the market matures and China’s economy cools.

Demand exceeded India’s for the second quarter in a row, with Indian demand falling 29 per cent in the quarter to 207.6 metric tonnes. This was attributed to the rupee’s weakness, efforts to keep a lid on gold imports and industrial action by jewellers.

Globally, demand for gold fell 5 per cent during the first three months of 2012 to 1,097.6 metric tonnes. Overall demand for gold is falling as investors, spooked by the euro zone crisis, cash in. Prices are still high – about 22 per cent higher than the previous year, but well off an all-time high seen in September last year.

Gold demand from jewellers in China rose to 156.6 metric tonnes, about 30 per cent of the global total, while investor consumption rose 13 per cent year-on-year to 98.6 metric tonnes.

Bullion has been rallying for 11 years now, performing very well since the onset of the financial crisis four years ago as investors sought a haven from weak currencies and inflation.

Last year, gold ingot vending machines akin to ATMs were introduced in Beijing. They dispense bars of up to 2.5kg, accept cash and credit cards and have been on trial at banks and private clubs. The ATMs are also to be found in the United Arab Emirates, Spain and the US.