By Daniel Wilson
Is Gold demand in China slowing down compared to India? India and China are the world’s two largest gold consuming nations. China’s growing gold market has remained the most-talked about commodity news in recent times as several analysts and Chinese officials have been talking big about the dragon country’s plans to step up gold reserves. The Chinese bullion market has been, of course, growing exponentially well, as the country was projected to overtake India in gold consumption.

But can China easily overtake India in gold demand and consumption. It looks, despite the hype, it is not going to be easy for China to outshine India’s vibrant, ever-growing and rich gold market. Proof of it is the latest Gold Demand Trends report from the apex global gold body--World Gold Council--that has been published this week.

The WGC report says gold demand in India and China will continue to grow driven by jewellery demand, in spite of high local currency gold prices. In Q1 2010, India was the strongest performing market as total consumer demand surged 698% to touch 193.5 tonnes! In China, demand proved resilient; demand increased 11% in Q1 2010 to 105.2 tonnes.

Here is the crux: as far as gold is concerned, India is the country that continues to call the shots in the global bullion market as the country’s consumer demand soared by a mind-boggling 698%! The Chinese gold demand has been also rising well, but not at the rate of Indian gold consumption.

The WGC report proves one thing: both China and India continue to be the movers and shakers in global gold market. Both China and India are battling hard to emerge as the number one country as far as gold demand/consumption is concerned.

Bullion analyst Mark Robinson says India and China are leading the global bullion market. “Nowhere in the world do investors and common people buy so much of jewellery items, gold coins, gold bars and gold exchange traded funds as in China and India. Bullion investment market in China and India is growing very fast. But whether China will overtake India or the vice versa is a tough question to answer. Both the countries are battling for gold supremacy in the world,” Robinson points out.

Before we get further into the ‘golden’ battle between India and China, here is the brief gold demand statistics from WGC for Q1, 2010:

**While the volume of total identifiable gold demand was down 25% on Q1 2009 levels at 760.2 tonnes, in US$ value terms, the decline was a more moderate 9%.

**Consumers are more comfortable with a higher local price environment, borne out by demand in non-western markets where jewellery demand increased 43%.

**Indian jewellery demand rose 291% to 147.5 tonnes, there was continued strong demand from China and signs of recovery in Turkey and the Middle East.

**Net retail investment demand, which covers retail bar and coin demand, was 26% up on the first quarter of 2009 at 182.5 tonnes.

**Industrial and dental demand was up 31% at 103.2 tonnes, driven by a solid recovery in the electronics and other industrial sectors owing to the improved economic conditions.

Now, to get back to the India-China zest for Gold supremacy, global bullion analysts began to look at these countries in recent years as declining US dollar value and increased consumer demand for commodities from India and China made investors park their funds into these two most populous nations in the world. Global commodities investors like Jim Rogers have been investing heavily into Chinese commodities market as he felt it was better to invest in the Asian market, especially in the growing, vibrant commodities market like China.

China has been nursing ambitions to step up its gold reserves in the last one year, driven by the declining value of US dollar that the Chinese central bank holds as foreign exchange reserve. Right now, the Chinese gold reserves are in the range of around 1,050 tonnes. India’s foreign exchange reserves held in gold is much lower, around 500 tonnes only.

But in November 2009, India surprised the world when the country bought 200 tonnes of gold from the International Monetary Fund (IMF) for a high price—around $1150 that virtually ‘shocked’ China. Bullion analysts then predicted that China would jump in to buy gold from IMF. But so far, the Chinese central bank has been keeping a low profile as far as IMF gold purchase is concerned.

However, in the wake of the IMF gold buying from India, Chinese officials announced that China had ambitious plans to step up its gold reserves to around 10,000 tonnes in the next 10 years. Whether China manages to amass gold in massive tonnes remains to be seen in the coming years.

China continues to aggressively promote gold investment. Jewellery shops continue to sprout across Chinese cities, towns and rural areas. India is not sitting idle, either. Dozens of new gold jewellery showrooms are being opened across India every month. Sales of gold coins and bars have been the new marketing campaigns from broking houses, banks and even post offices in India.

There is, now, a fierce competition between China and India in gold consumption. Which country will win the global supremacy in gold market remains to be seen.

Daniel Wilson is a gold market analyst with Commodity Online. You can contact him at info@commodityonline.com

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