China still unable to surpass Indian gold demand – but getting close



Particularly strong demand for gold jewellery, a big jump in Q4 consumption in India and a continuing high level of Central Bank purchases offset a decline in investment during Q4 2012.

Even the World Gold Council seems a little surprised by its latest gold demand figures for the October to December quarter, showing that Indian gold take-up has been particularly strong with Q4 gold demand rising by a huge 41.2% year on year, thus keeping India ahead of China as the world’s biggest gold consumer.  China had been widely expected to surpass India this year, but according to the WGC figures lagged India by 88 tonnes over the full year.

The rise in Indian gold consumption over the quarter though may well not be repeated as it is thought that much of the increase was due to purchases being accelerated ahead of the onset of rises in gold import duty.  Overall India consumed 864 tonnes of gold during the year, around 20% of global gold production.  However Indian statistics may well be difficult to analyse as the government tries to curb imports through duty hikes – the more the taxes take effect the more likely that smuggling of gold into the country will increase.  Indeed there have been reports that gold smuggling into the country, primarily from the Middle East, has risen very sharply indeed – see Gold smuggling soars in India.

While global Q4 gold demand was 3.8% higher than in the 2011 Q4 period, that for the year as a whole fell back 3.9% to 4,406 tonnes, although in value terms it increased to US$236.4 billion – which is an all time high.

Probably the most significant statistic in the latest Gold Demand trends report was the not unexpected one that Central Banks continued to buy gold during the quarter – accumulating an additional 145 tonnes making them net purchasers for the eighth quarter in a row. In total, central Banks purchased 535 tonnes of gold over the full year, the highest volume since 1964.  To a great extent this signifies a continuing lack of confidence in the traditional reserve currencies – the dollar, the euro and the pound sterling, particularly amongst eastern nations.  This amount does not include any purchases made by China, but there is considerable informed speculation that China has indeed been buying gold but hiding it in an account from which it will only move the amounts purchased into its official figures when it sees the time as ripe to do this – something it has indeed done in the past.  The WGC anticipates that Central Bank buying will continue this year, driven by emerging market economies.

Other key findings from the report are as follows:

·         Apparent Chinese demand was flat year-on–year, reflecting the impact of economic slowdown.  However looking at Q4, total demand was up 1% on the previous quarter to 202.5 tonnes. Jewellery demand was 137.0t up 1% on Q4 2011 and investment demand was 65.5t, up 2% on the previous year. These increases may reflect the fact that the economic slowdown in China appears to have been shorter than expected notes the WGC.

·         Global investment in ETFs in 2012 was up significantly by 51% on the preceding year, though Q4 was down 16% to 88.1 tonnest when compared with the high levels recorded in Q3 2012.  Investment demand (the sum of ETFs and total bar and coin demand) was 424.7 tonnest, down 8% compared to the same quarter last year, but was 19% above the five year quarterly average.

·         · Demand for ETFs and similar products in Q4 was down by 16% on the corresponding quarter in 2011 to 88.1tonnes, but was up by 51% on the full year.

·         · Demand in the jewellery sector was up 11% to 525.3 tonnes compared to 472.4 tonnes in the same quarter in 2011. Jewellery demand for the full year 2012 was down 3% on 2011 in tonnage terms.

·         · Fourth quarter demand for gold in the technology sector was down on Q4 2011 by 3% at 100.9 tonnes which is in line with expectations, following moves by manufacturers to substitute gold bonding wire. This was as much a reflection of the inventory cycle, as of weaker demand for electrical items. Technology demand for the full year 2012 was down 5% on 2011 in tonnage terms.

·         · The Q4 2012 supply of gold from mines was up 2% year-on-year, while recycling was down 5% against the same period. Full year supply in 2012 remained stable against 2011 levels.

 In the official release on the report, Marcus Grubb, Managing Director, Investment for the WGC commented: “China and India remain the world’s gold power houses, and by some distance, despite challenging domestic economic conditions. In India, consumer sentiment towards gold remained strong despite measures aimed at curbing demand, reaffirming gold’s role in Indian society. In an underdeveloped financial system in India, gold has an important role to play.

“Notwithstanding the predicted economic slowdown in China, investment demand was up 24% in Q4 on the previous quarter and jewellery consumption held steady at 137.0t.

“Central banks’ move from net sellers of gold, to net buyers that we have seen in recent years, has continued apace.  The official sector purchases across the world are now at their highest level for almost half a century.

“Despite the turbulent macroeconomic climate throughout the year, as well as the regional uncertainties affecting India and China, the two largest gold markets, annual demand was 30% higher than the average for the past decade.”

Author: Lawrence Williams
Posted: Thursday , 14 Feb 2013 



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