China May Become World’s Biggest Gold User, Beating India

China, the world’s largest consumer of energy and base metals, is set to displace India this year as the biggest gold user on an annual basis as surging incomes drive increased demand for jewelry and investments.

Demand in China jumped 20 percent to 769.8 metric tons in 2011, while consumption in India fell 7 percent to 933.4 tons, according to a report from the producer-funded World Gold Council today. “It is likely that China will emerge as the largest gold market in the world for the first time in 2012,” said Marcus Grubb, managing director of investment.

China’s economic growth has lifted the nation’s consumption of everything from soybeans to copper, while boosting incomes in the world’s most populous country. Gold has rallied for 11 years on rising investment and jewelry demand, led by consumers in Asia, and increased central-bank buying. China is also the world’s biggest gold producer.

“Gold will be attractive as a luxury good, and certainly China has made it clear that it likes luxury goods,” said Jeremy Friesen, Hong Kong-based commodity strategist at Societe Generale SA. “There’s a lot of pent-up demand.”

Bullion for immediate delivery traded at $1,718.57 an ounce at 4:13 p.m. in Shanghai, 25 percent higher than a year earlier. The precious metal reached at an all-time high of $1,921.15 last September as Europe’s sovereign-debt crisis boosted demand.

On a quarterly basis, China was already the top consumer in the three months to Dec. 31, with demand at 190.9 tons compared with India’s 173 tons, the council said. Jewelry demand in China rose every quarter last year, and the nation was the biggest such market worldwide in the second half, the group said.

Bars and Coins

Demand in China is climbing as investors seek to protect of their wealth from inflation of more than 4 percent, and after the government clamped down on property investment last year, Liu Xu, analyst at Capital Futures Co., said from Beijing. Stock markets have been lackluster, Liu said.

“The big pool of savings is trying to seek investments, not necessarily for profit, but for preserving value,” Liu said. “In that sense, gold has been doing a pretty decent job in the past 11 years in Chinese investors’ minds.”

China has kept its benchmark lending rate at about a three- year high to slow inflation, which was 4.5 percent last month, compared with the 4 percent estimate in a Bloomberg News survey of economists.

Gold imports from Hong Kong surged to a record 431 tons last year from 119 tons in 2010, according to the Census and Statistics Department of the Hong Kong government.

Chinese investors bought 258.9 tons of gold bars and coins last year, 38 percent more than a year earlier, as gold-jewelry demand gained 13 percent to 510.9 tons, the council’s report said. Council members represent 60 percent of global output.

“India and China have grown both in population and in wealth, and the amount of potential demand remains very strong,” said Friesen at Societe Generale. Sales in China may be fairly resilient on the consumption side, he said.

To contact Bloomberg News staff for this story: Feiwen Rong in Beijing at frong2@bloomberg.net; Glenys Sim in Singapore at gsim4@bloomberg.net

To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net

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