New York: 21:06 || London: 02:06 || Mumbai: 05:36 || Singapore: 08:06

Global Outlook

Weak Demand from China and India Makes Sustained Gold Rally Difficult

August 18, 2014, Monday, 05:42 GMT | 00:42 EST | 09:12 IST | 11:42 SGT
Contributed by eResearch

No good news for gold prices out of India or China.

Gold demand in India, the second largest consumer after China, could fall by as much s 13% in 2014 as a 10% duty on imports restricts demand, according to the World Gold Council.

Consumption could fall by as much as 13% in 2014 to 850 metric tons from 975 metric tons in 2013. Official imports fell 43% in the first half of 2014 from the first half of 2013. Unofficial flows, which include demand from the wedding and festival seasons, is likely to be extremely sensitive to this year’s monsoon with a weak season cutting into farmer’s incomes. The Indian monsoon, which accounts for 70% of annual rainfall in many regions of India, is projected to be the weakest since 2009.

It would be great to be able to say that increased demand from China, the world’s No. 1 consumer of gold, would make up for any decrease from India but that doesn’t look to be true in 2014. In the second quarter Chinese consumers curbed their purchase of gold. Last year Chinese consumer demand for gold soared following on a 28% drop in the price of gold. With gold prices stable or slightly ahead in 2014—gold is up 9% for 2014 as of August 14—consumer buying has dropped from last year’s levels with Chinese consumers buying just 144 metric tons of gold in the second quarter. That’s a 45% drop from purchases in the second quarter of 2012, according to the World Gold Council.

The total effect has been a 30% decrease in global retail gold purchases to 510 metric tons.

It’s hard to see a sustained rally in gold, especially absent significant evidence of rising global inflation without increased demand from China and India.