Gold demand in China remained robust in the third quarter, with the country already topping its previous full-year record for gold buying, the World Gold Council reported Thursday.
The country was the world’s top consumer in the July-September period and is on pace to replace India as the leading buyer for the full year. Indian demand was also up for the year through September, but was hurt in the third quarter by government efforts to restrict imports in an effort to battle a large current-account deficit.
For the year through September, mainland Chinese gold demand was 797.8 metric tons, reported Marcus Grubb, managing director of investment for the World Gold Council. Demand for full-year 2012 was around 776 tons.
India’s official demand was listed at 715.7 tons through September, compared to around 602 for the first nine months of 2012, Grubb said.
“At the nine-month point (of 2013), China is the largest market in the world,” Grubb said. “As a result, it’s obviously pretty likely they’re going to be No. 1 for the full year as well.”
He commented that one of the factors boosting gold demand in the country is the fact that other assets there have not provided big returns this year.
“The stock market has been very volatile,” Grubb said. “And there have been restrictions on property ownership in China to try and reduce speculation in real estate. That has meant more capital has flowed into gold.”
Further, Grubb said, a slowdown in Chinese economic growth will not harm gold demand the way it would for base metals such as copper, which are used to develop infrastructure.
“It’s actually helping gold demand,” Grubb said. “The logic for that is previously a lot of the growth in China has been driven by exports. Now what is happening is China is moving more to a growth model driven by domestic consumption and spending by households.
“Those households are still getting wealthier…Because more of that growth is internal rather than external, it means there is more money available to buy gold.”
For just the third quarter, total demand for “Greater China” -- including China, Hong Kong and Taiwan – was pegged at 220.1 metric tons, up 19% from 185.7 in the same period a year ago. Jewelry demand rose 28% year-on-year to 172.2 tons. Bar and coin investment dipped 7% to 47.9 tons.
Indian Jewelry, Bar, Coin Demand Fall In Third Quarter
For the third quarter, total gold demand in India fell 32% year-on-year to 148.2 tons from 219.1 a year ago, according to the WGC report. Indian jewelry demand fell 23% to 104.7 tons. Bar and coin demand fell 48% to 43.5 tons.
India has raised import duties on gold so far this year, instituted a ban on the import of gold coins, and also announced a so-called 80:20 rule that stipulates that 20% of all gold imported must be exported before further imports can be made.
In particular, confusion over the 80:20 rule hampered the market, the WGC said. “It effectively stopped importing temporarily into India,” Grubb said.
Also, the Indian rupee depreciated to record lows against the U.S. dollar, driving up the rupee price of gold for Indians.
“Imports, already at a low level in July, all but disappeared in August and September as the market struggled to adapt to the new parameters,” the WGC said. “Gold entering the country unofficially through India’s porous borders helped to meet pent-up demand, together with an influx of recycled gold that was drawn out by higher prices and promotions offered by retailers. Nonetheless, the third quarter was decidedly weak and it is testament to the strength of the first half-year that year-to-date Indian consumer demand is up 19% on 2012.”
As the Indian government tries to clamp down on gold imports, a number of analysts have suggested there has been an increase of gold smuggling into the country. When factoring this in, India may well be a 1,000-ton market this year, Grubb said. There are market estimates that smuggling may be some 50 tons a quarter, meaning potential for another 150 to 200 smuggled tons for the full year, he explained.
There is clearly pent-up demand for gold in the country, he said. He pointed out that there is a premium in Mumbai of over $100 an ounce.
“If you add in the duty, it’s over $250 an ounce,” he said. “So we’re again seeing the highest premiums we’ve ever seen in India at the moment, which basically tells you the demand is very strong but there isn’t enough gold to satisfy the demand.
“The government’s measures have not changed the demand side. They’ve changed the supply side.”
This is reflected data in recycled gold, Grubb added. Recycling was down year-on-year globally in the third quarter, but rose roughly five-fold in India from a year ago.
“Imports (into India) virtually ceased in Q3,” he said. “It meant the premium had to go up and up until you could actually entice Indian consumers to come in and liberate some of their gold for recycling.”
The WGC is a market-development organization for the gold industry. Data for the report is compiled independently by the consultancy Thomson Reuters GFMS.