China may pip India as the world?s biggest gold consumer in 2012, as soaring incomes will drive demand for investment as well as jewellery in the communist country, according to the World Gold Council.
Gold demand in India fell 7% in volume to 933.4 tonne last year, compared with a 20% jump in Chinese consumption to 769.8 tonne, the council said in a report on Thursday. In value terms, India?s gold demand gained 16% to $46.37 billion, while China?s climbed 53% to $38.70 billion. At present, China is the world?s biggest gold producer.
?China?s growing economic clout and the haven appeal of gold as an investment tool have bolstered demand, especially in times of a global macro-economic crisis and a clampdown on the housing market in the communist country,? said Ajay Mitra, managing director (India & West Asia) of the Council. This apart, India?s decision last month to almost double the import duty on gold will discourage overseas purchases in 2012.
?There are three major reasons for China?s growing gold consumption. First, the per capita income is more in China than India. Second, the Chinese currency is less volatile than the rupee. Third, the Chinese don?t have too many options for safe as well as attractive investment as gold, as the precious metal continues to perform well,? Mitra told FE. India will, however, continue to remain a key player in the global gold market, he added. The Council members account for 60% of the world?s gold output.
Gold has climbed for 11 straight years since 2001, led by robust consumption in India and China, and soaring central-bank buying. The average gold price rallied 28% last year to $1,571.52 per troy ounce. On a quarterly basis, China pipped India as the top consumer in the three months through December, with demand having risen to 190.9 tonne compared with India?s 173 tonne, it said.
The communist country was also the biggest market for jewellery in the second half of 2011 when high prices curbed the Indian consumption. Gold for immediate delivery traded at $1,718.57 an ounce in Shanghai, 25% higher than a year before. The precious metal reached an all-time high of $1,921.15 in September last year, helped by the sovereign-debt crisis in Europe.
?Indians have been the biggest buyers of jewellery, and most of the demand comes from the rural population due to the sentimental and traditional value attached with the gold. So when gold prices go up, demand gets hit in volume terms as people opt for light-weight jewellery, although in value, it will still be robust. The main spoilsport last year was the depreciation of the rupee, which made overseas purchases costlier,? said a senior executive at a Mumbai-based asset management company.
The country?s gold imports crashed 44% to 157 tonne in the last quarter of 2011, as local prices hit all-time-high levels due to the global macro-economic crisis as well as a weakening rupee and curbed purchase interest, the council said on Thursday. But the country?s overall gold purchases from overseas rose 1.1% to 969 tonne, helping it retain the top spot as the world?s top gold consumer for the year. The rupee depreciated around 16% against the dollar last year.
India?s jewellery demand dipped 14% to 567.4 tonne last year, while investment demand rose 5% to 366 tonne. However, in rupee-denominated value term, demand for jewellery and investment rose 13% and 38% respectively last year due to high prices of the precious metal, driving up the overall demand by 22%. On the other hand, Chinese investors purchased 258.9 tonne of gold bars and coins last year, 38% more than a year before, while jewellery demand rose 13% to 510.9 tonne, the council said.
?India?s gold imports will likely remain flat this year,? said Mitra. Factors including the fluctuation in the rupee, gold prices and government policy will influence India?s gold demand in 2012,? he added.
?Initial feedback from retailers suggests that the first quarter of 2012 will be better than the last quarter of 2011. The rupee has strengthened and the volatility of prices has come down,?said Mitra.
