China surpasses India in gold demand

China surpassed India, the perennial leader in gold demand, for the first time during the fourth quarter of 2011 due to the lack of alternative investment options in the world's most populous country.

The price-conscious Indian consumers stayed largely away from active buying during the October-December quarter on the rupee's record appreciation, while Chinese buyers remained encouraged due to the yuan's firmness.

. . .

Data compiled by the World Gold Council, the market development organisation for the gold industry, showed overall demand in India declined 42 per cent to 173 tonnes in the fourth quarter ended December, as compared to 298.6 tonnes in the corresponding quarter of the previous year.

While, Chinese buyers managed to sustain gold demand at 190.6 tonnes, a marginal increase from 190.3 tonnes during the same period last year.

Ajay Mitra, managing director of WGC -- India and West Asia, is, however, optimistic about India bouncing back with some support from the forthcoming Union Budget in March.

. . .

"The removal of one per cent octroi and excise duty may provide a breather from the current high prices for consumers," he said.

India's total demand, compared to the previous year, fell seven per cent while that of China was up 20 per cent, making up for the difference.

Even globally, several countries saw a fall in gold demand, which however was covered up by China and some other countries, taking total world demand in 2011 up marginally by 0.4 per cent.

India's jewellery demand in the quarter ended December recorded a decline of 44 per cent from 185.5 tonnes to 103 tonnes, while the investment demand plunged 38 per cent from 113.1 tonnes to 70 tonnes.

. . .

Despite gold imports falling in the last quarter, India still remains the highest importer in the world, with 969 tonnes imported compared to 958 tonnes last year.

Jewellery demand dipped to 567.4 tonnes in 2011 from 657.4 tonnes in the previous year, though demand for gold coins and bars rose to 366 tonnes from 348.9 tonnes in the reviewed period.

However, full year demand for gold in China remained way behind India.

China's full-year demand was recorded at 769.8 tonnes, a rise of 20 per cent from the previous year.

Mitra attributed the lower consumer sentiment in India largely to depreciation in rupee which fell 8.37 per cent.

. . .

Against that, Chinese yuan appreciated 0.2 per cent during the quarter ended December 2011.

Net gold import in India also fell to a five-quarter low of 157 tonnes during the period under consideration.

During the quarter, however, availability of gold through recycled jewellery shot up to 22 per cent, a staggering over 50 per cent growth compared to the previous quarter.

The dramatic shift in buying sentiment in the two Asian neighbours, the cultural heartlands of gold constituting around 55 per cent of global jewellery demand and 49 per cent of the world's gold demand, is significant given that the jewellery industry remains a manpower-intensive sector generating thousands of jobs.

. . .

A shift in trend skewed towards China may threaten employment generation across the country.

Global demand for gold in 2011 rose to 4,067.1 tonnes worth an estimated $205.5 billion -- the first time global demand has exceeded $200 billion and the highest tonnage since 1997, according to the World Gold Council's Gold Demand Trends.

The main driver for this increase was the investment sector where annual demand was 1,640.7 tonnes, up five per cent over the previous record set in 2010 at a value of $82.9 billion.

The pre-eminent markets for investment demand in 2011 were India, China and Europe.