Global demand for gold dips even as China buying soars

Agencies/New York

Chinese consumption of the yellow metal hit new highs on investor concerns over inflation

Global demand for gold fell 5.0% in the first quarter of 2012 but demand in China hit record highs and outstripped that of megabuyer India, the World Gold Council said yesterday. Demand worldwide fell to 1,097.6 tonnes in the quarter ended March, worth an estimated $59.7bn, with gold prices on average 16% higher than those seen in the same period last year, the council said in its latest report. Reduced demand for gold from global central banks, jewellery and technology sectors outweighed a rise in investment demand for gold. Yet Chinese consumption of the yellow metal hit new highs on investor concerns over inflation, rising 10% to a record 255.2 tonnes and outstripping rival India which saw a sharp decline, the WGC said. China remained the world’s top gold consumer for the second quarter in a row, with its gold consumer demand up 10% to 255.2 tonnes, beating India’s 207.6 tonnes.“Further growth is expected (in China): investors remain wary of high inflation rates; and property market restrictions continue to drive demand for gold among investors seeking access to real assets,” said the WGC in its quarterly Gold Demand Trends report.China’s physical gold bars and coins demand rose 13% on the year to a quarterly record of 98.6 tonnes, while jewellery demand climbed 8% to 156.6 tonnes and accounted for 30% of the world’s gold jewellery market, the WGC data showed.The WGC said investment demand in China going forward will depend on price expectations, and the performance of other assets such as property and the domestic stock market, but inflation will continue to be a concern to investors.The country’s gold jewellery demand is likely to remain on a more moderate growth path as the market matures and economic growth cools, it said.Spot gold averaged $1,690 an ounce in the first quarter, up from $1,387 a year earlier. Prices have declined to below $1,550 this week.Demand in India was down 29% from a year earlier to 207.6 tonnes, hit by a jewellers’ strike, a weak rupee and government policy aimed at reducing gold imports and the country’s wide current account deficit. “China and India have seen continuing economic growth and whilst China’s economy is expected to slow, it will nonetheless surpass the rates of growth in the West,” said Marcus Grubb, managing director (investment) at the WGC. In 2011, India saw a 7% decline in demand year-on-year to 933.4 tonnes, while demand from China jumped 20% to 769.8 tonnes. Grubb said Chinese demand over 2012 is expected to outstrip that of India, traditionally the world’s largest consumer and importer of gold. The two countries, which have both been battling high inflation, account for about half of the world’s gold demand combined. Global demand surpassed $200bn for the first time in 2011 as demand for the metal as a safe-haven investment surged, the WGC said in its annual report in February.Yesterday, demand for gold in India softened as prices rose more than a percent, tracking the overseas market and a falling rupee, dealers said.The most-active gold for June delivery on the Multi Commodity Exchange (MCX) was up 1.09% at Rs28,266. The contract on Wednesday fell to Rs27,855 — its lowest since April 4.“Demand is very volatile. Yesterday (on Wednesday), we saw some improvement in buying due to price fall. Today, demand was muted as prices rose above Rs28,000,” said a Mumbai-based dealer with a private bank, which imports bullion.Global gold rose almost 1% yesterday, bouncing off a 4-1/2 month low, as weaker prices attracted new physical buyers, but gains were likely to be limited as the euro was undermined by fears of a deepening debt crisis in Greece.The rupee plays an important role in determining the landed cost of the dollar-quoted yellow metal.The rupee fell to a new record low against the dollar yesterday as local stocks gave up gains notched earlier in the session, while the euro remained near four-month lows.The wedding season is underway in India, the world’s biggest buyer of the yellow metal, and will taper off by the end of the month. The festival season has already ended.