CHINA COMING THROUGH

Dollar Wary China Soon To Be World’s Top Gold Buyer

The World Gold Council cites China as the main source of gold demand, lending support to gold prices.

Maybe it’s a love for bling or just uncertainty over the dollar’s direction, but make no mistake about it, the Chinese have the gold bug.No other country on earth can be credited with supporting gold price fundamentals as China. Even India is waning by comparison.

According to the World Gold Council, China will overtake India as the world’s leading gold consumer any day now. They are already the world’s leading gold producer. But what really interests gold lovers is demand. And China demand is up 10% this year to a record breaking 255.2 metric tons of the precious metal bought in the first quarter alone.

The buying stems from a mix of gold investments to consumer demand for gold jewelry.

“China and India have seen continuing economic growth and while China’s economy is expected to slow, it will nonetheless surpass the rates of growth in the West,” said Marcus Grubb, managing director for investment at the industry-funded council based in London.

The council, reiterating its forecast from February, said it expects that China will become the biggest source of demand for gold this year, beating India.

Gold demand in India was affected in the first quarter by a number of factors; a new tax on gold jewelry, two increases in the import duty for gold and weakness and volatility in the rupee. Jewellery demand fell 19% to 152.0 tons from the same period last year. Investment demand was down 46% from the previous year at 55.6 tons. In May, the government withdrew the new tax on jewelry and the market is already responding positively.

Global gold demand in the first quarter of 2012 was 1,097.6 tons, down 5% from the high demand levels seen in the first of 2011, according to the World Gold Council’s Gold Demand Trends report. The average price of gold for the quarter was $1,690.57, 22% higher than the average for first quarter 2011.

Demand for gold is coming mainly from China this year, but also from on going central bank purchasing in a move to diversify away from fiat currencies, and inflows into exchange-traded funds like SPDR Gold (GLD), one of the largest ETFs in the world.