Gold Loses Lustre for Chinese Investors

November 15, 2012 at 07:26

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Chinese demand for gold fell at the fastest rate in nearly a decade in the third quarter as the country’s investors stepped back from the precious metal amid slowing growth and waning inflation.

Chinese consumers bought 176.8 tonnes of gold investment products and jewellery between July and September, according to data published by the World Gold Council, an industry lobby group.

That was down 8 per cent from a year ago and the sharpest year-on-year fall since 2003, when the Chinese bullion market had only recently been deregulated.
“In the last two quarters demand in China has slowed down. Impending changes of leadership created uncertainty in the financial markets,” said Albert Cheng, managing director for the far east at the WGC.

The data will come as a blow for bullish gold investors, who have become accustomed to rapid growth in Chinese demand. Bullion demand in the country has risen from about 250 tonnes in 2006 to almost 800 tonnes now, according to the WGC data, which is produced by ThomsonReuters GFMS, a consultancy.

The data exclude buying by the Chinese central bank, which many analysts and bankers believe has been a significant factor in the market over the past year. Gold imports into China from Hong Kong have risen rapidly, despite the dip in demand, implying strong buying by the central bank, analysts say.

The surge in Chinese gold demand had helped the yellow metal power to a record high of $1,920 a troy ounce last September. Since then, however, the price, which was on Wednesday at $1,729, has stagnated and investors have become warier.

Mr Cheng said that he believed the fall in Chinese demand was just a “blip in the uptrend”.

“The market has now recovered . . . I’m very confident that come Q4 gold demand will return to an uptrend,” he said.

Marcus Grubb, managing director for investment at the WGC, said he expected investment demand to be boosted by the launch of China’s Firstgold exchange-traded fund in 2013. “There are investors not able to access [the] gold market as liquidly as they would like and the ETF obviously opens up a lot of avenues there,” he said.

The contraction in the third quarter meant that China slipped back behind India, which it had only recently overtaken as the world’s largest gold market. Indian gold demand recovered somewhat from its recent malaise, rising 9 per cent to 223.1 tonnes.