China to Surpass India as Top Gold Market in 2012

The World Gold Council released a report on Thursday, Feb. 16, predicting that in 2012, China would likely surpass India as the largest gold buyer in the world. While gold has long been a staple of both high-end investors and individual stockpiles of wealth in the Central Asian nation, India has suffered from a depreciating currency in recent years, putting gold out of reach for many consumers. Strong demand and a growing middle class, meanwhile, have contributed to the rise in gold purchases in the East Asian country.Gold has traditionally been favored in China as a source of certain wealth. Growing global and local uncertainty due to Eurozone troubles as well as local housing market stumbles have caused many Chinese to use their newly-developed buying power to invest in the previous metal. 2011 saw the country’s gold demand increase by 20%, with 34% based in investment demand and the rest based in purchases of physical gold bullion, jewelry and coins, the WGC report said.In particular, the WGC report stated that the East Asian nation was the largest gold jewelry market worldwide in the second half of 2011. Demand for gold jewelry increased every quarter of 2011, indicating strong long-term fundamentals for the precious metal.

The managing director for the Far East at the World Gold Council, Albert Cheng told reporters that China’s gold market will increase by another 20% in 2012. On the other hand, demand for gold in India fell in 2011 by 7% due in large part to soaring prices. Domestic gold prices hovered at record levels, bolstered in part by the rising price of gold throughout 2011 as well as the weak local currency.

In September 2011, spot gold nearly hit $2,000 per troy ounce, trading at one point for $1,920.94 per ounce. The 2011 low was in January at $1,308.45. Indeed, many analysts believe that only rising CME margins helped to keep the precious metal from breaking $2,000 in 2011. Chinese investors have fled to gold due to concerns over U.S. and eurozone economic health even as private Chinese
individuals have sought to diversify their holdings away from currency and into something more tangible.

The WGC report declined to predict or forecast gold prices in 2012, but stated that prices rose about 25% between 2010 and 2011. However, gold demand remained solid as a result of inflationary pressure and global economic uncertainty, Mr. Cheng told reporters. This rising demand will likely be the main driver in the Chinese rise to the top gold market in 2012.

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