Gold Seen Flowing East as Refiners Recasting Bars for Asia

Gold demand in China, India and the Middle East surged in the 12 months to September while European sales contracted, underscoring a shift in the global bullion market from west to east, according to the World Gold Council.

China’s demand for jewelry, bars and coins rose 30 percent to 996.3 metric tons, while usage in India gained 24 percent to 977.6 tons, WGC data showed. European demand fell 11 percent, with drops in France, Switzerland and the U.K. Asia and the Middle East’s share of global sales grew to 68 percent in the 12 months from 65 percent, while Europe’s fell to 8.3 percent from 11 percent, according to data compiled by Bloomberg.

Gold’s slump into a bear market in April boosted demand across Asia and the Middle East, outweighing redemptions from bullion-backed exchange-traded products, the London-based group said in a quarterly report today. Bullion is heading for the first annual loss since 2000 as the Federal Reserve weighs tapering stimulus amid prospects for a U.S. recovery. Bullion is flowing eastward, according to the producer-funded council.

“The vast bulk of the year-to-date growth in consumer demand for gold came from eastern markets,” the council said. “The recent dynamics of the gold market have worked to ensure that lower prices boosted Asian demand to an extent sufficient to absorb the gold flowing from western markets.”

Smaller Sizes

In Europe, gold is being refined from larger bars suitable for local users into smaller sizes preferred in Asia, the council said. Exports of bullion from the U.K. to Switzerland -- where refineries are sited -- rose more than 10-fold to 1,016.3 tons in the first eight months, it said, citing data from Eurostat, the European Union’s statistics agency.

Asian bullion demand will keep expanding as elevated inflation spurs purchases, HSBC Holdings Plc economists including Frederic Neumann wrote last month in a report that said the region is “going for gold.” A vault that can hold 2,000 tons was opened in Shanghai by Malca-Amit Global Ltd. this month to target increased demand for storage space.

Gold for immediate delivery traded at $1,281.70 an ounce at 3:28 p.m. in New York, 23 percent lower this year and 33 percent below the all-time high reached in September 2011. Holdings in bullion-backed ETPs stood at 1,873.3 tons yesterday, taking this year’s decline to 29 percent after assets gained every year since the first products were listed in 2003.

Import Curbs

In the first three quarters of 2013, demand in China was 797.8 tons, ahead of India’s 715.7 tons, according to Marcus Grubb, managing director of investment at the WGC. That puts the second-largest economy on pace to overtake India as the biggest user as the Indian government imposes import restrictions on gold. Global consumer demand rose 605 tons to 2,896.5 tons in the nine months, the council said, with Asia and the Middle East accounting for 90 percent of the increase.

“Tactical investors in western markets exited their positions as they began to speculate on the early tapering of U.S. quantitative easing,” the council said. “Conversely, at the consumer level, demand for gold jewelry, bars and coins for the first nine months of the year was at a historical record.”

European demand for jewelry, bars and coins fell 11 percent to 310 tons in the 12 months to September, according to council data, as French consumption dropped 48 percent, Swiss use lost 22 percent and U.K. demand shrank 6 percent. In the Middle East, usage expanded 25 percent to 225.8 tons over the 12 months.

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