India v China – race for gold

India is making a serious run at reclaiming its title of world’s top gold consumer with official April numbers confirming the trend.  Official numbers saw 85t imported in April (up 78% on last April) and after March saw the 2 fold increase to 125t and around 60t to mid May indicating a similar increase on the same time last year.

The drivers are numerous but include a strengthening economy in the world’s second most populous country, a population who throughout time have seen gold as the ultimate investment.  Importantly too, the reason India initially lost its top placing to China was the Government imposed restrictions to curb gold imports to defend their current account and Rupiah.  You see gold is India’s 2nd biggest import.  But what has changed since then is their biggest import, oil, has halved in value and hence taken a lot of pressure off their current account.  The Government has eased some of the measures but not the 10% duty.  It appears people have stopped waiting for this to happen are piling back into the market regardless.  China’s Government have at the same time made it easier for their population to invest in shares at the same time as stimulating that sharemarket to bubble like conditions with cheap money and hence steering some into shares not gold.

There are 3 important factors to consider however when looking at these official numbers.  Firstly, since the introduction of the restrictions there has been an explosion in gold smuggling into India and that can’t be quantified but all acknowledge it is a lot.  Secondly, China’s consumption numbers via World Gold Council (which we reported last Friday) are well below the Shanghai Gold Exchange number we report each week in the Weekly Wrap.  The SGE numbers include gold bought by Chinese banks, which as far as we are concerned is still gold consumption.  Finally just take a look at the map below of population around the world.  Throw in that after Asia, Europeans are the biggest buyers of gold and German’s in particular one of the highest private owners per head of population in the world (and consumption has just rocketed 20% on concerns around Greece) and it all makes for an extremely compelling demand side of an already declining supply equation.