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Thai Buddhists apply pieces of gold to Buddha statues for good luck at Wat Phra Chetuphon temple in Bangkok on Jan. 9, 2012.

Sakchai Lalit/Sakchai Lalit/Associated Press

Did China just overtake India as the world's largest gold consumer?

Little more than a year ago it would have been almost laughable to ask that question. In 2010 India's gold consumption was a full 46 per cent -- or 275 tonnes -- higher than China's, according to data from consultants GFMS published in the World Gold Council's quarterly reports.

Even three months ago it would have been a stretch. In the first nine months of 2011, Indian gold demand totalled 743 tonnes, compared to 612 tonnes for China.

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But data released in the last few days suggests that China may have closed the gap, inching ahead of India in terms of overall gold demand in 2011.

Some of us had predicted this, but this week's data are sketchy, questionable, and incomplete, so it remains a hypothesis at this stage. GFMS is releasing updated - but not final - 2011 data on Tuesday, while the WGC should publish fourth quarter numbers in mid-February.

Nonetheless, at least one senior gold trader I have spoken to believes that China did indeed consume more gold than India last year. That conclusion implies an enormous divergence in gold buying in the two countries in the fourth quarter. And indeed, initial data and anecdotal reports from traders support that picture.

Chinese gold imports from Hong Kong - which in past years have accounted for about half of the country's total imports - have soared to unprecedented levels.

In October and November, China imported 189 tonnes of the precious metal from Hong Kong. Add to that China's domestic production, which runs at a rate of about 90 tonnes a quarter, and even without including any buying in December or any imports from sources other than Hong Kong, Chinese demand in Q4 would stand at a minimum of 279 tonnes.

The reason for the spike in Chinese imports in recent months, traders say, is that throughout the supply chain the Chinese gold industry is aggressively building inventory ahead of Lunar New Year, after experience in 2011 when the country ran short. The effect is truly stunning: the 189 tonnes of imports in October and November compares with total imports for the whole of 2009 of just 45 tonnes.

Indian demand, on the other hand, collapsed in the fourth quarter as a slide in the value of the rupee made gold much more expensive for Indian buyers, already wounded by the slowing domestic economy.

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The president of the Bombay Bullion Association told Reuters that Indian gold imports in the fourth quarter of 2011 tumbled by more than 50 per cent to 125 tonnes. Since India has almost no domestic production, that number, if correct, is also India's overall gold demand in Q4.

Put all the numbers together, and they imply that full year Chinese demand in 2011 was at least 891 tonnes (and probably a good deal more), while Indian demand was just 868 tonnes. Bingo! China wins!

Now for the caveats. Most importantly, some analysts are sceptical of the Chinese import data. Perhaps the gold is being re-exported (illegally) to Vietnam, they say, perhaps it is the Chinese central bank buying, or perhaps the data are just wrong.

Secondly, there is scepticism about the Indian import data. While all agree Indian demand was tepid in the fourth quarter, not all believe there was such a dramatic decline.

We shall only know for sure when better data come out in the next couple of months. Regardless, though, one thing is sure: it is hard to overstate the significance of the increase in Chinese gold demand.

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