Last Updated : 21 December 2009 at 15:30 IST
Finally, India loses top gold buyer status
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Since many years India has been ruling the world as the top consumer of the yellow metal but this year and increased surge in demand from China and a fall in gold jewellery sales in India due to high prices have caused India losing the top slot.
China’s rapidly growing economy and investment demand could see it add gold to the long list of commodities where it is the world’s largest buyer.
The story this year is mostly about falling demand in India — down by more than half in the first nine months of this year through September.
Gold’s record-breaking run, which has lifted prices 28 per cent this year in rupee terms, saw Indians cashing in on jewelry and gold bars, while the weakest monsoon in nearly 40 years hurt incomes in the rural sector that is the bedrock of consumer purchases.
In contrast, China’s demand was up 8 per cent in the same period. China could be buying gold as they are not sure what the value of their currency would be against the dollar. But gold is not intrinsic to them as it is to Indians.
Metals consulting firm GFMS projects that China’s gold demand will total 432 tonnes this year, and that India’s will total 422 tonnes.
A severe monsoon and record prices were behind the drop in Indian consumption this year, while loose liquidity in China has driven a buying spree across a range of resources.
India’s growth rate is catching up with that of China, and appears to be entering the early stages of the high-growth era that China saw from 1992 to 1993, giving consumers more purchasing power.
The extent of the fall in purchases could be building pent-up demand that might lead to a big correction.
Analysts in India said the drastic fall in demand must not be taken to mean India’s appetite for gold fell to the same extent.
A lot of consumers recycled old jewelry to buy new jewellery, the analysts said, while others sold gold bars to profit from high gold prices.
India’s total demand may have fallen by only 5 per cent to 10 per cent, when taking into account the recycled gold.
When Indians get used to new price levels, their traditional affection for gold might revive consumption, as there is a huge latent demand in India that could explode if prices make a significant correction.
In the long run, China might still overtake India. Economic and social indicators point to its greater affluence and spending capacity.
In the last decade, India’s gold imports remained capped under 800 tonnes despite a rising population and per capita income.
In rural markets, Indians are buying luxury goods such as automobiles and televisions, while the picture is different in rural China.
China is stepping up efforts to extend consumption in rural areas, including the newly wealthy people who are trying to own top brand gold for social status purposes.
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