China overtakes India in Gold sales

India has been until now, the undisputed single-largest Gold bullion consumer, with its own final demand outweighing the next largest market – China by almost 57 percent. But it seems now, that the Chinese Gold buyers have caught up during 2008.

World Gold Council's latest data says Chinese demand is surging rapidly (up by 15 percent year-onyear) while Indian demand fell as Indian Gold sales collapsed by about 65 percent in the first six months of 2008.

Finally, China has overtaken India in Gold sales as India's Gold demand has been consistently dropping for the last few months. China has for all these years remained one step behind India, trying hard but unable to match India's voracious appetite for the yellow metal. It looks like finally the Tortoise, at its own pace has overtaken the hare. India has for so long been the undisputed single-largest consumer of Gold bullion, with its final demand outweighing the next largest market- China by almost 57 percent.

High prices have been the culprit this year as Gold imports in India for 2008 dipped by almost 47 percent to 402 tonnes. The December 2008 Gold imports at 3 tonnes versus 16 tonnes in December 2007. Despite December being the marriage season, it is not the ideal and as auspicious as is the month of April and May. Buying remained dull and prices remained high on global cues.

High prices have been the culprit this year as Gold imports in India for 2008 dipped by almost 47 percent to 402 tonnes. The December 2008 Gold imports stood at 3 tonnes versus the 16 tonnes in December 2007. Despite December being the marriage season, it is not the ideal and as auspicious as is the month of April and May. Buying remained dull and prices remained high on global cues.

How are the Indian ETF's doing?

Although redemption has been marginal, India's Gold collection under Exchange traded funds edged lower and this has not really helped the funds. The Exchange traded fund lost about 4.3 percent on the month to 5.3 tonnes in December. The Gold Benchmark Exchange Traded Scheme (GBES.NS) on National Stock Exchange closed at Rs 1,316.89 per gram, down 7.6 percent from its all-time high of Rs 1,425 per gram struck in mid October. Though Gold collections under the ETF's are growing year on year, they remain negligible when compared to India's imports of around 700 tonnes annually.

Although prices in December have been range bound between Rs 12,500 to Rs 13,500 per 10 grams and not very erratic, they have been very fluctuating. A rally has hence been absent for long as prices climb and are soon pulled down by lackluster demand. December began with high prices as the wedding season was in process and Gold is an integral part of an Indian wedding. But neither the auspicious days nor the recent shuddering Bombay blasts could catalyse a rally in Gold prices. We have been talking about the absence of a Gold rally since November and are still waiting to see one.

First week of December saw Gold prices surge ahead of the Federal Reserve's Interest rate meet. A rate cut would indeed support the euro and in turn push up Gold prices. Investors remained bullish even in India but buyers remained conspicuously absent. Traders and retailers alike strongly felt that Gold prices are too high for the Indian consumer, extremely price sensitive that he is. One puzzling fact is that despite the continual string of bad news and with the world economies worsening by the day,

Gold has not reacted and rallied. Price volatility has been at its lowest in December and prices have moved almost sideways.

Indian buying has been insignificant and Gold imports for this month have fallen drastically as mentioned earlier by a staggering 47 percent. The continuous depreciation of the rupee has not helped either, making imports more expensive and the need for capital more vital.

The only relief over the long run is the second important phase of wedding season in the Hindu calendar arriving in a few months. Let's hope Gold sales pick and India's traditional behavioral buying patterns restore the dampened imports.