China Gets Gold Fever

China has surpassed India as the biggest market for investment-grade gold, based on newly released statistics for the first quarter of 2011. (Although India is still the world’s largest overall consumer of gold products.)  From CNN:

China edged out India to become the world’s largest buyer of investment-grade gold products, according to a World Gold Council report.

In the first quarter, Chinese consumers purchased 90.9 metric tonnes in gold bars and coins, valued at $4.1 billion.

That’s more than double the amount Chinese consumers were buying year ago. It’s also more than the 85.9 metric tonnes bought by Indian consumers during the first three months of the year.

India still dominates the gold jewelry market, buying 206.2 metric tonnes in the first quarter, compared with China’s 142.9 metric tonnes.

China and India account for nearly half of all gold products sold during the first quarter, said the World Gold Council.

The sudden jump in Chinese demand for gold is thought to be driven by fears of inflation. Analysts expect that demand for gold in China will increase in the future. From Bloomberg News:

China’s investment demand jumped 123 percent to 90.9 tons in the first three months, compared with an 8 percent rise to 85.6 tons for India, the council said. Bullion jumped to a record $1,577.57 an ounce this month as investors sought a store of value amid rising inflation and concerns about the strength of the global recovery.

“Gold has taken on a new role in China amid concern about inflation,” Song Qing, a director at Lion Fund Management Co., said by phone from Shanghai. “It is increasingly being seen as an asset allocation choice. Just imagine the total wealth in China and even a small percentage of that choosing to buy gold. This demand is going to be enormous.”

The culture’s deep-rooted preference for the precious metal, the impending inflationary fears in emerging markets, and limited domestic investment channels will all drive further growth in the Chinese gold demand, the council said in a report. Demand for gold jewelry gained 21 percent in the first quarter from a year ago to a record 142.9 tons.

May 20, 2011 5:00 PM
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