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China May Surpass India as Biggest Gold Market, WGC Says

China Seen Toppling India as Biggest Gold Market
When gold reached its record Sept. 6, it was moving in tandem with the VIX as Europe’s debt crisis and mounting concern about the U.S. recovery spurred investors to buy the metal to diversify their assets. Photographer: Dhiraj Singh/Bloomberg

Gold demand in China may surge as much as 30 percent this year as rising incomes boost consumption, helping the country topple India as the world’s largest bullion market on an annual basis, according to the World Gold Council.

Demand, which rose to a record in the first quarter, may gain to between 900 metric tons and 1,000 tons this year, from 769.8 tons in 2011, Albert Cheng, Far East managing director at the producer-funded group, said in an interview. Indian usage may drop to 800 tons to 900 tons, from 933.4 tons, he said.

Higher demand in the world’s largest gold producer may help arrest a slump in prices, which have plunged from last year’s record as investors favored the dollar amid concern Greece may quit the euro. Global gold demand fell 4.6 percent to 1,097.6 tons in the first quarter, the council said in a report today.

“We are confident China will become the largest source of demand for gold this year,” Cheng said in Singapore, restating a council forecast made earlier in 2012. “Over the next two to five years, China and India will go neck to neck and may account for more than 50 percent of world demand.”

Immediate-delivery gold traded at $1,548.19 an ounce at 4:03 p.m. in Singapore. That’s down 1.2 percent this year, and 18.5 percent from the record close on Sept. 5. The price touched $1,526.97 yesterday, the lowest level since December as the Greek debt crisis sent the euro to a four-month low.

‘Seek Cash’

“Investors are selling gold now to seek cash and rebalance their investment portfolio because of concerns about the euro-zone sovereign-debt crisis,” said Cheng, who’s been in the gold industry since 1985. “The fundamental reasons for investing in gold remain very strong, so these investors will return.”

Bullion has rallied for 11 years, gaining through the financial crisis that started in 2008, as investors bought the metal to protect their wealth from currency debasement and inflation. Goldman Sachs Group Inc. said in a May 9 report the precious metal remains the so-called currency of last resort.

Demand in China totaled 255.2 tons in the three months to March 31 from 232.5 tons a year earlier, the council said in the report. Investment demand gained 13 percent, while jewelry demand increased 7.9 percent to 156.6 tons, making China the world’s largest jewelry market for a third quarter.

The council’s outlook for increased consumption in China this year contrasts with the view from Lao Feng Xiang Co., the mainland’s biggest gold-jewelry maker, which said this month the country’s demand growth may stagnate in 2012.

‘Increasing Wealth’

“The increasing wealth of the middle class is very important,” Cheng said. “In the past 10 to 15 years, it had reached first- and second-tier cities such as Beijing, Shanghai and Hangzhou. We expect such wealth to reach 600 million people in third-tier cities.”

The prospect of China becoming the largest bullion user reflects the country’s economic ascendance. Per capita gross domestic product has more than doubled since 2000, according to World Bank data. The country is already the top consumer of copper and biggest producer of steel.

In India, demand fell to 207.6 tons in the first quarter, from 290.6 tons a year ago, after the government hiked taxes and import duties, the council said. Investment demand dropped 46 percent and jewelry demand fell 19 percent, it said. A drop in annual demand this year would be the second straight fall.

“Consumers will adjust to the changes over time,” Cheng said, adding that purchases in India are improving this month. “In India, people buy gold for cultural and religious reasons - - that won’t change.”

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