Last Updated :
26 February 2010 at 17:20 IST
China, India still bullish on gold
BEIJING (Commodity Online): Worried over the rising inflation, China is tightening liquidity, but it seems there will be no effect on gold sales due to this.
China’s central bank had ordered all financial institutions to set aside more deposits as reserves so that the government can control the rising inflation. Some analysts had feared that this move will impact the demand for gold in China, which is vying to become the numero uno in gold consumption now. India is the number one gold consumer in the world now. In 2009, there fears that China will beat India in gold consumption but that did not happen.
However, China is on way to become the number one consumer of gold with more and more people opting for the yellow metal now.
According to World Gold Council (WGC), gold demand in China grew 9 per cent to 427.5 tonnes last year. Increasing liquidity will create inflation problems and China has perceived that. Jewellery buyers and investors in China are always small buyers. China’s jewellery demand grew 6 per cent despite a global recession last year. The tightening of the liquidity will have very little impact on the gold market.
Almost all jewellery buyers and bar investors in China are retail investors. It doesn’t have an institutional market for gold. In the US, the institutional market of gold didn’t exist until after it had a better product for them — exchange-traded funds. Institutional investors can’t buy gold and bring it home. They need a product for them to get in and get out easily. ETFs allow institutional investors to go to the spot market where they can buy and sell easily.
Gold demand by the world’s top two consumers has started strong in 2010 also, with India’s jewellery industry buying regularly.
Gold accounted for 42% of global demand between the October 2008 and September 2009 period of the financial crisis, up from 26% the year before, while jewellery demand, a normal mainstay, weakened.
Only China increased its volume of jewellery buying in 2009, while volumes fell by almost a fifth in India and the United States, and by even more in the Middle East and Russia.
But Indian jewellery demand rebounded at the end of the year, showing annual growth in the fourth quarter of 2009.
Gold prices have fallen from December’s record above $1,200 per ounce to $1,093.80 this week.
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