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Will India Surpass China as Leading Gold Buyer in 2014?

By Ed Moy,

China bought more gold in 2013 than any other country in the world, surpassing perpetual leader India for the first time. But in 2014, India might regain its top ranking back.

Both India and China have long-standing economic and cultural preferences that favor gold as a store of value. From unstable governments and weak banking systems to wars and upheavals, they have sought gold as a way to diversify their wealth. Culturally, gold symbolizes wealth, prosperity and power and is used as gifts for weddings, birthday, graduations and holidays. Lots of gold is bought and gifted during India’s Diwali and the traditional wedding season and China’s Lunar New Year.

Both countries have growing economies that have lifted hundreds of millions of people into an expanding middle class. As a result, individual purchases of gold have skyrocketed. Some of the purchases have been asset diversification and others have been more generous gift giving.

India has consistently been the top gold-buying country in the world, so much so that their trade balance is out of whack. India does not produce any gold itself and must import it. The volume has been so large that it has swamped Indian exports, and therefore threatens the value of the rupee. The Indian government has responded by restricting gold imports. What gold that gets through is charged a premium, which reduces the amount of gold bought by price-sensitive buyers.

The other factor that has cooled Indian gold sales is that gold prices are slowly evolving from trading in a tight range to falling during time. Coupled with the election of a pro-business prime minister who has energized the Indian stock market, it should be no surprise that gold sales are slipping from past all-time highs.

China surpassed India as the top gold-buying nation in the world with a record 1,132 metric tons purchased last year. The Chinese tend to buy when gold dips, but gold has traded in a tight range with falling prices. In addition, Xi Jinping, China’s new president, has started cracking down on corruption and it is no coincidence that gold sales have fallen dramatically. The campaign includes bans on giving gold bars, coins and jewelry to Chinese officials. Still, projected gold purchases in China are estimated to be between 900 to 1,000 metric tons this year, which is lower than last year’s world-record pace.

Both India and China’s government policies are taking a big bite out of gold purchases this year. But India will likely regain their top status this year as the world’s largest consumer of gold because demand still outstrips supply. Eventually the gold import restrictions will be lifted. However, it is unlikely that China will allow bribery and corruption to rise to previous levels.


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