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Asia Regaining Its Appetite for Gold

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It appears Asia is regaining its appetite for gold. The yellow metal has steadily been migrating from the West to the East over the last few years, with China becoming a more and more dominant player in the world gold market. Traditionally, the two biggest consumers of gold in the world are China and India; however, during the latter part of 2016, Asian gold demand sagged, but it now appears the Chinese and Indians have gotten their appetites back.

Gold consumption shot up in China during the first quarter of 2017, rising a healthy 14.73%, according to a report in China Daily. Gold bar sales surged 60% to over 100 tons, according to the China Gold Association.

“The surge in gold bar sales came on the back of more people using them to hedge against risk as the public became more aware of its attributes, according to analysts.”

Figures out of Hong Kong also reflect a surge in Chinese demand. Net imports into China from Hong Kong more than doubled month-on-month in March, rising to 111.647 tons, according to Reuters. It was the highest import level to the mainland from Hong Kong since May 2016, and the second straight monthly increase.

Because China does not provide official trade data on gold, imports from Hong Kong serve as a proxy for flows into the mainland, so it does provide a good estimate. Gold also come into the country through Shanghai and Beijing. Some estimates suggest as much as 50% of gold moving into China moves through these two cities.

Withdraws from the Shanghai Gold Exchange also indicate a healthy Chinese demand for gold. Withdraws so far in 2017 have eclipsed 550 tons.

Gold demand is also rebounding in India. Analysts expressed optimism that demand for gold would be robust during the Akshay Tritiya festival. Indians were expected to celebrate the important Hindu holiday over the weekend by buying gold. The Orissa Post, an English language Indian newspaper, reported that gold is expected to “glitter more” with increasing demand this year.

“With Akshaya Tritiya round the corner, there is a renewed focus on gold. Whether its price goes up or down, Indians cannot take their eyes off it. Their fascination for the yellow metal continues to fuel its demand every year. Jewelers have stocked up on gold to cash in on the cyclical event. Even though the Centre has come out with multiple investment options to dissuade people from investing in physical gold, the yellow metal has not lost its luster with Indians. Last year, there was a slump in gold off-take around this time as traders then had been going through a pan-India protest opposing the Centre’s one per cent excise levy. However, this time around the sale of gold is expected to go up many notches courtesy an uptick in economic sentiments, barring a hiatus following demonetization and a favorable monsoon.”

Bloomberg reported that gold imports into India surged 582% year-on-year in March to 120.8 tons. It was the largest import number since the middle of 2015.

“Consumption in India, the world’s second-biggest gold buyer, has been recovering after falling to the lowest level in seven years in 2016. A strike in March last year after a levy was introduced on jewelry produced and sold in India reduced consumption that was further dented by the government’s decision to withdraw high-denomination currency notes.”

It was only a matter of time before demand rebounded in India. Gold is a central part of the Indian economy. The Orissa Post described gold as the “traditional avenue for investment” in the country.

“It has been consistently giving good returns to investors over the last decade despite a mark-up in its price. Gold has remained a safe haven even in times of global uncertainties such as the Greece debt default, US easing monetary policy and more recent issues such as Syrian and North Korea crises. The yellow metal has also proved its mettle when it came to hedging against inflation.”

Of course all of these factors are not unique to India or Asia. They apply equally in the West.
 

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