Pacific Money

China Overtakes India As Top Gold Consumer

The World Gold Council’s 2013 trend report finds that Chinese demand for gold surpassed India’s.

China Overtakes India As Top Gold Consumer
Credit: Flickr/Brian Giesen

According to the World Gold Council (WGC), 2013 marked the year that gold consumption in China surpassed that of India, making it the world’s largest consumer of gold. According to The Wall Street Journal, “Chinese demand for gold bars, coins and jewelry soared by 32% to record levels in 2013.” Despite the sharp uptick in Chinese consumers’ demand for gold, prices slumped 28 percent last year. The findings are available in the WGC’s complete Gold Demand Trends 2013 report.

The WGC figures place Chinese imports at 1,066 metric tons and Indian imports at 975 metric tons, rendering the ratio of imports between these two countries more in line with their population ratios. Gold consumption rose in India by 13 percent and was partially stymied by import restrictions on the precious metal to combat the country’s ballooning current account deficit.

Gold analysts see the uptick in Chinese demand and consumption emerging from a drop in prices and a rise in middle-class incomes. “When prices drop, there’ll always be buyers,” notes one Shanghai-based analyst cited by the The Wall Street Journal. Industrial and Commercial Bank of China, the largest Chinese bank by assets, found its precious-metals trading business to have grown 22 percent year-over-year in 2013 to $176.6 billion.

Deregulation of the gold market in China is still somewhat limited, especially when compared to India. Marcus Grubb, managing director of investment strategy at the WGC, notes that “China is 10 years behind India in terms of deregulation and growth of demand.” “Given last year was such a strong year, it will be hard to equal that again in 2014, [but] the stock of gold in China is less than half of that in India, so we think there’s plenty more room to grow,” he adds.

Grubb’s optimism seems well-placed given that China’s decades-long restrictions on gold ownership have largely eroded and rising urban affluence is causing demand to grow. Additionally, Chinese buyers are drawn to the precious metal as a store of value, fearing an imminent macroeconomic slowdown, a property bubble, or other financial crises.

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Reports suggest that India is likely to reduce its import tax on gold before the end of the month to a level between 6 and 8 percent, down from 10 percent currently. Concerns about a spiraling current account deficit in 2012 led to a gradual tax increase from a low of 2 percent early that year to 10 percent today. The government of India has also regulated gold trade by mandating importers to re-export up to 20 percent of what they imported.

India’s attempts to fight the current account deficit by regulating gold imports and exports has worked–its current account deficit is down to $45 billion for the fiscal year ending March 31 from $88 billion the year before. However, the import curbs have led to a rise in illicit gold commerce and smuggling.