China Remains Top Gold Consumer Ahead of India in Third Quarter

Hong Kong (Nov 14)  China was the world's top gold consumer in the third quarter, extending a demand gap against India, which is usually the No. 1 consumer of the precious metal, World Gold Council data showed Thursday. Indian demand was undermined by a slide in the rupee's value and import curbs, which pushed domestic prices to near-record levels.

Indian consumer demand for gold-defined by the WGC as jewelry, bars and coins acquired by individuals-slumped by 32% to 148.2 metric tons in the July-September period compared with a year earlier, while demand in China rose by 18% to 209.6 metric tons.

India and China combined account for about half of global gold demand, and buying patterns in both are closely tracked by investors, as they have a significant influence on prices. Other factors, such as the strength of the U.S. economy, its bond buying programs and international political news, also affect price movements.

In the year to Sept. 30, Chinese and Indian demand stood at 797.8 tons and 715.7 tons, respectively, the WGC said.

Indian demand dried up after the government introduced import curbs and increased taxes to stem a buying spree that followed a slump in world gold prices in April, which contributed to a ballooning of the country's current-account deficit and eroded the rupee's value. Nearly all of India's gold demand is met by imports and paid for in dollars.

In addition to a ban on imports of gold coins introduced in August and a progressive increase in import taxes, Indian importers have also since July been required to to re-export 20% of all gold they take delivery on.

"Imports, already at a low level in July, all but disappeared in August and September as the market struggled to adapt to the new parameters," the WGC said.

Marcus Grubb, managing director of investment at the WGC, said the Indian government's efforts to curb gold imports "by no means indicates that the appetite for gold in India is waning."

"We have seen some increases in demand in other countries which have close links with India, some of which may be making its way back to the country through illicit channels, which have reopened in recent quarters following a long period of inactivity," he said.

It is likely smuggling will continue in the fourth quarter, the WGC said, noting reports that "a good market for 10-tola [3.75-troy-ounce] bars is re-emerging due to the relative ease with which they can be concealed."

Despite strong overall gold demand growth in China, gold bar and coin consumption there fell slightly in the July to September period following a spate of buying earlier in the year driven by lower average gold prices. Even so, Chinese demand for gold bars and coins, at 47.9 tons, was 12% above the full-year level in 2012.

However, this was offset by much stronger jewelry consumption, which rose 29% to 163.7 million tons in the third quarter, making China the world's single biggest market and far exceeding India's 104.7 million tons.

Not included in the WGC's China data was demand for jewelry and investment gold in Hong Kong, "which registered another quarter of exceptional growth." Hong Kong jewelry demand was up 28% at 7.5 tons, driven by tourists from the Chinese mainland, it said.