China eyes India’s spot as top gold consumer

[Bliss Xpress]

China’s 09 gold demand seen higher than India’s; India 2010 demand may
rebound on stable price, good rains; richer China may wrest top gold
consumer spot in future.

It’s taken all of recorded history, but this year China finally looks
set to overtake India as the world’s number one gold consumer.

It may struggle to hold that position in the short term, as the one-
off factors that have slowed India’s gold demand fade, but in the long
term China’s rapidly growing economy and investment demand could see
it add gold to the long list of commodities where it is the world’s
largest buyer.

The story this year is mostly about falling demand in India -- down by
more than half in the nine months to end-September, according to the
World Gold Council.

Gold’s record-breaking run, that has lifted prices 28% this year in
rupee terms, saw Indians cashing in jewellery and gold bars, while the
weakest monsoon in nearly 40 years knocked incomes in the rural sector
that is the bedrock of consumer purchases.

In contrast, China’s demand is up 8% in the same period.

“India has been the world’s largest gold consumer since time
immemorial. In the Roman era, Indians bartered spices, cotton, jute
for gold and precious stones,” Ajay Mitra, Indian subcontinent
managing director of the WGC, said.

“China could be buying gold as they are not sure what the value of
their currency would be against the dollar. But gold is not intrinsic
to them as it is to Indians.”

Metals consultancy GFMS sees China’s gold demand at 432 tonnes this
year, and India’s at 422 tonnes.

India demand may return

A severe monsoon and record prices were behind the drop in Indian
consumption this year, while loose liquidity in China has driven a
buying spree across a range of resources. These factors could easily
reverse, allowing India’s broad base of jewellery demand to once again
offset lagging investment demand.

“China may temporarily surpass India as the world’s largest gold
consumer but it’s questionable whether that can be sustained,” said
Xiao Minjie, senior economist at Daiwa Institute of Research in Tokyo.

Minjie said India’s growth rate is catching up with that of China, and
appears to be entering the early stages of the high-growth era China
saw back in the 1992-93, giving consumers more purchasing power.

The extent of the fall in purchases could be building pent up demand
that may emerge at a big correction, analysts said.

Spot gold has risen by nearly a third this year, touching a record
high of $1,226.10 an ounce last week as a weak dollar and worries
about inflation drive investors towards the traditional store of
value. “This year was an exception. Next year may be better provided
prices are stable and there is no drought again,” said Bhargav Vaidya,
a bullion analyst in Mumbai.

Dealers and analysts in India also said the drastic fall in demand
must not be taken to mean India’s appetite for gold fell to the same
extent, because a lot of consumers recycled old jewellery to buy new
jewellery, while others sold gold bars to profit from high gold
prices.

“India’s total demand may have fallen by 5 to 10% only,” when taking
into account recycled gold, said Nayan Pansare, an analyst who works
for jewellery exporters.

When Indians get used to new price levels, their traditional affection
for gold may revive consumption as there is a huge latent demand in
India that could explode if prices make a significant correction,
GFMS’s executive chairman Philip Klapwijk said at the Shanghai
conference.

“India’s affinity for gold is very strong and consumption in the
retail level is far broader than in China where a limited number of
wealthy people are buying gold,” said Shuji Sugata, manager at
Mitshubishi Corp Futures in Tokyo.

China may get ahead in the future

In the long run, China may still pip India as economic and social
indicators point to its greater affluence and spending capacity.

In the last decade India’s gold imports have remained capped under 800
tonnes despite a rising population and per capita income. Analysts
said gold demand is failing to rise much as urban Indians are buying
low-weight gold items and diamonds and rural Indians are taking to
luxury goods such as automobiles and televisions.

“In the next 5 to 10 years, definitely yes, China could overtake
India,” said a senior gold dealer in an international bank in the
Middle East that is looking to start supplying gold to India. “That is
because Indians have started diversifying to stocks and property and
the fascination for white goods in the rural side has just started,”
the dealer in the international bank said.

The opposite may be true in rural China, where people are showing more
interest in gold.

“China is stepping up efforts to extend consumption in rural areas,
including the newly wealthy people who are trying to own top brand
gold for social status purposes,” said Cheng Binghai, Chairman of the
Shanghai Gold & Jewellery Trade Association at the conference.

“Per capita in the rural area is increasing and as the growth rate of
gold prices is behind the growth rate of disposable income in China,
there is also a very good online shopping market,” he added.

Source: http://www.blissxpress.com/newsdetails.asp?BNID=64