Thursday November 15, 2012 1:00AM
(Kitco News) - India was the world’s strongest gold market in the third quarter, while Chinese demand slipped due to a softer economy, the World Gold Council reported Thursday.
The result is that through the first three quarters of the year, the two countries are neck-and-neck in the race for total demand in 2012.
At the start of the year, the World Gold Council forecast that China would overtake India as the world’s largest consumer in 2012. The organization looked for Chinese demand of 800 to 850 metric tons, with 700 to 750 from India.
"That’s looking a lot tighter now because of the slowdown of China in Q3,” said Marcus Grubb, managing director for investment at the World Gold Council.
Through the end of September, Indian demand moved back out in front at 612 metric tons, while China’s was 605, Grubb reported.
"It’s all going to be on the fourth quarter (to determine) which market is bigger,” Grubb said. The WGC still anticipates China will be the largest consumer for the year due to its historically strong fourth quarter, but the margin between the two countries is likely to be narrower than originally expected, Grubb said. The report said a recovery can be expected in the fourth quarter due to expectations of stimulus from the incoming Chinese leadership and as the holiday gift-giving season approaches.
Indian demand rose 9% to 223.1 metric tons in the July-September period from 204.8 in the year-ago quarter, the WGC said in its quarterly report on trends in demand. The country accounted for 30% of global consumer demand. Indian jewelry buying was up 7% year-on-year to 136.1 tons and investment demand rose by 12% to 87.0 tons.
"A lot of this was because of strength in the currency, rebounding at last against the (U.S.) dollar,” Grubb said.
A number of analysts have said a weak rupee earlier this year hurt Indian demand by making the price high in local currency terms. The U.S. dollar rose from around 48.5 rupees in February to a high of 57.33 in late June, before subsequently slipping to around 52 on the final trading day of the third quarter.
"I don’t think it means Indian demand will come roaring back necessarily,” Grubb said. “The currency is still not particularly strong against the dollar. But it’s considerably improved from where it was in the first half of this year.”
The report also said the stronger Indian year-on-year demand in the third quarter partly reflective of price expectations among Indian consumers. After initial price consolidation early in the quarter, the rupee gold price rose fairly sharply throughout late August and early September as gold strengthened against the dollar. This led to expectations of further price rises, which encouraged consumers to buy into the rising trend, said the WGC. The strong quarter was also a reflection of improving sentiment among domestic consumers following a tumultuous first half of the year that included strikes by jewelers, a doubling of the import duty and government rhetoric aimed at cutting gold imports.
Jewelry buying increased due to re-stocking ahead of the Indian wedding and festival season, the WGC said.
Indian investors moved into imitation coins, which the WGC said are round medallions bought for savings or gift purposes, with more than 50% expected to be exchanged for jewelry over time. This demand, which was up 59%, tends to be seasonal, occurring mainly during the so-called wedding season and around festivals, especially Diwali.
"China is the surprise on the downside,” Grubb said. “We had a series of quarters where China has been bigger than India and continuing to grow strongly.”
However, in the third quarter, China’s demand fell 8% to 176.8 tons from 191.2 in the year-ago period. "This was related to the slowdown in the economy,” Grubb said.
Jewelry consumption fell 6% year-on-year in the third quarter and investment declined 12%. Jewellery demand came in as 123.8 tons and investment was 53 tons.
"Nevertheless, consumer demand as a whole was 23% above its five-year quarterly average, confirming the longer-term strength of the market,” the WGC said.
The World Gold Council is a market-development organization for the gold industry. Data for its quarterly report is compiled independently by the consultancy Thomson Reuters GFMS.
Follow me on Twitter! If you want to keep up with metals news and features, then follow me on Twitter @allensykora .
By Allen Sykora of Kitco News; firstname.lastname@example.org