The Hindu Business Line : China’s gold imports rise

Mumbai, Aug. 30 Contrary to popular perception, it is not India but China which is the growth market for gold. This is the conclusion one would come to after an analysis of the latest data released by the World Gold Council, which showed that Chinese demand increased by an impressive 31 per cent in the first half of 2007 to 165 tonnes from 126 tonnes in H1 last year.

The Chinese import volume may be dwarfed by the big growth rate registered by India (72 per cent in H1 2007); but there is another interesting aspect. According to Barclays Capital, what makes the increase in China’s gold demand striking is the fact that it is not compared to a subdued base in 2006 when jewellery demand in many parts of the world including India was depressed by high and volatile prices.

Forging ahead

Comparing 2007 to date with 2005 shows global gold demand is actually lower by 10 per cent this year, revealed analysts adding that the same comparison shows Chinese gold demand was actually 33 per cent firmer this year. In other words, while the rest of the world including India is playing catch-up, China is one of the few parts of the world where gold demand is actually forging ahead.

Until 2003, although Chinese demand for several commodities had been expanding rapidly, gold demand was largely stagnant. Currently, China is the world’s third largest consumer of gold jewellery. This followed deregulation of the market, in addition of course to rising incomes. Chinese consumers are unlike Indian consumers who have strong affinity for the yellow metal for religious and cultural reasons. Gold will have to compete with alternative investment options as also with platinum and gem set jewellery. Will China sustain its gold import momentum? Answer to the question has the potential to change gold prices and world market sentiment.

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