Speculations have been rife since last year among experts with regards to the consumption of gold in 2012, with India and China being almost neck- to- neck in the competition. However, taking small leaps every quarter of 2011, China has now surpassed India in its demand for gold, being the largest consumer in the world.
The predictions have come true. “It is likely that China will emerge as the largest gold market in the world for the first time in 2012,” said Marcus Grubb, Managing Director, Investment at the World Gold Council (WGC) as reported by The Guardian in February.For the second quarter running, China has been in the lead. According to the WGC, China’s demand has risen by 10%, to 255.2 tonnes, while India’s has fallen by a staggering 19% to 207.6 tonnes. It is believed that the Chinese demand may further hop ahead by 30% during the course of the year.
“China and India have seen continuing economic growth and whilst China’s economy is expected to slow, it will nonetheless surpass the rates of growth in the West. As we previously forecast it is likely China will become the largest source of demand for gold in 2012,” said Grubb.
We at Inchin Closer decided to take a closer look behind the scenes and find out the reason for this change in demand. Jewellery demand dropped 19% in the first quarter of last year as expected, reports the GCW, because of the introduction of tax on gold ornaments and two increases in the import duty for gold. Although prospects have begun to look up post the lifting of the tax, India is burdened with other problems which prevent it from racing China such as the high gold prices combined with the recent weakening of the rupee.
Besides economic factors, socio- cultural factors play a large hand in determining the purchase of gold, especially in a nation like India in which the purchase of gold is tied to several religious customs and festivals. The growing middle class in China, however, have more practical goals in mind, buying bullion as a safety net in face of the increasing inflation rates.
Although the global demand for gold in the first quarter of this year has fallen 5% (1,097.6 tonnes), China seems to have brighter prospects as it sprints ahead to become the leading gold consumer of the world.