Gold Demand in China Slumps 52% After Buying Frenzy Subsides

Gold demand in China shrank in the second quarter as consumers in the biggest user bought fewer bars, coins and jewelry amid a clampdown on corruption and as the buying spurred by last year’s price slump wasn’t sustained.

Purchases in Asia’s largest economy plunged 52 percent to 192.5 metric tons in the three months to June from a year earlier, contributing to a drop in global consumption, the London-based World Gold Council said in a report today. Every Asian economy tracked by the producer-funded group bought less bullion in the period, apart from Taiwan, as demand across the biggest consuming region shrank 46 percent to 470.9 tons.

While gold’s tumble into a bear market in April last year spurred a purchasing frenzy that helped to push China’s demand above India’s, the pace of buying dropped this year. The data add to signs of slowing bullion consumption in Asia as banks including Goldman Sachs Group Inc. expect prices to resume losses. President Xi Jinping stepped up an anti-graft drive in China this year, hurting demand for luxury goods.

“The data confirms our view that Chinese gold demand will stay relatively weak compared with 2013, which only serves to drag gold prices lower into the second half,” said Barnabas Gan, an economist at Singapore-based Oversea-Chinese Banking Corp.

Gold for immediate delivery advanced 9.6 percent this year to $1,316.84 an ounce at 4:43 p.m. in Shanghai. Prices increased 3.4 percent in the three months through June compared with the 23 percent drop a year earlier, which was the largest quarterly slide since at least 1920.

Anti-Graft Campaign

Authorities in China are targeting tigers and flies, parlance for cadres from the top to bottom ranks, to root out corruption. Last month, the Communist Party’s announcement of a probe into former security chief Zhou Yongkang signaled that the campaign had breached the highest levels of power.

The campaign against bribery and corruption “has strongly discouraged purchases of bars and coins, along with other luxury-gift items,” the council said. “Price-sensitive investors were discouraged by the lack of price volatility.”

Jewelry consumption in China fell 45 percent to 143.4 tons in the quarter, while demand for bars and coins lost 64 percent to 49.1 tons, the council said. Last year, mainland consumption was a record 1,065.8 tons, or about 28 percent of global usage.

Demand in China may drop to 900 to 1,000 tons this year, Albert Cheng, the council’s managing director for the Far East, said at a media briefing in Shanghai today. That would be as much as 16 percent lower than in 2013.

Most Affected

China was the market most affected by the comparison with the second quarter of 2013, which was the highest quarter ever for jewelry demand due to the intensity with which consumers responded to the price decline, the council said.

Demand in the second quarter this year remained above the level in the same period of 2012, a year that the council described as “typical” for China’s consumption, according to the report. Usage was 147.4 tons between April and June in 2012.

Consumption was expected to expand to at least 1,350 tons by 2017 amid rising wealth, the council said in April. The global flow of bullion from west to east that helped to make China the world’s largest user will probably last for up to two decades, the China Gold Association forecast in June.

Gold will drop to $1,050 an ounce by the end of 2014 as the U.S. recovery accelerates, according to Goldman Sachs. Prices are expected to retreat as the Federal Reserve ends stimulus while contemplating interest-rate rises, said Gan at OCBC.

Vietnam’s bullion demand shrank 42 percent in the second quarter, while consumption in Thailand plunged 61 percent as political instability hurt sentiment, the council said. Buying in Indonesia, Southeast Asia’s largest economy, fell 42 percent.

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

To contact the editors responsible for this story: James Poole at jpoole4@bloomberg.net Jake Lloyd-Smith, Thomas Kutty Abraham

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