Gold demand across Asia will keep expanding as inflation spurs investment purchases, said HSBC Holdings Plc, estimating that the region’s share of worldwide consumption jumped in the past decade.
Demand for jewelry, bars and coins in India, Greater China, Indonesia and Vietnam increased to about 60 percent of the global total compared with 35 percent in 2004, economists including Frederic Neumann wrote in a note today, citing data from the World Gold Council. Bullion is mostly used in the region as a store of value, Neumann wrote.
While gold is heading for its first annual loss since 2000 as the U.S. recovers and the Federal Reserve weighs tapering stimulus, the slump spurred increased demand among coin and jewelry buyers across Asia. Since 2008, demand for gold in India more than doubled, while consumption in China rose almost 350 percent, Neumann said. The two countries are the largest buyers.
“With inflation still elevated in many markets and interest rates not offering adequate compensation, expect Asia’s voracious appetite for gold to persist,” Neumann wrote. “Asia is going for gold. Over recent years, demand has soared.”
Gold for immediate delivery traded at $1,319.99 an ounce at 3:47 p.m. in Singapore, down 31 percent from the record in 2011. Prices, which have lost 21 percent this year, will drop in each of the next four quarters and reach a four-year low as reduced stimulus in response to faster growth curbs haven demand, the 10 most-accurate forecasters tracked by Bloomberg said.
“In markets like India, Vietnam and China, consumers have few tools with which to protect their savings against rising prices,” said Neumann. “In recent years, rising inflation stoked demand for gold in a number of markets.”
Consumer prices in China will rise 2.7 percent next year and 3.1 percent in 2015, from 2.6 percent this year, according to HSBC forecasts. Inflation in India, seen at 8.7 percent this year, will be 7.7 percent in 2014 and 7.9 percent in 2015.
India increased import taxes on bullion three times this year to cool demand after buying helped widen the current-account deficit and hurt the rupee. The government plans to keep imports to 800 tons in the year to March 31 from 845 tons a year earlier, Economic Affairs Secretary Arvind Mayaram said Oct. 1.
“Soaring gold demand in the region is associated with deteriorating current-account positions,” Neumann said. “Of course, gold is not the only, or even the main, reason for shrinking surpluses (rising oil demand is the main culprit). Still, burgeoning gold imports clearly don’t help.”