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Can the Indian-Chinese Gold Frenzy Boost Prices?
Oct 23,2014 10:25CST
industry news
Many investors aren’t pleased with the current price of gold, which closed Wednesday at $1,241.10 per ounce.

Wednesday October 22, 2014, 5:30pm PDT
By Charlotte McLeod+ - Exclusive to Gold Investing News

Many investors aren’t pleased with the current price of gold, which closed Wednesday at $1,241.10 per ounce, but for buyers in India, the metal’s ill fortune has turned into an opportunity.

CNBC reported that a better Indian economy has prompted those in the country to buy the yellow metal during this year’s five-day Diwali festival, which will peak on Thursday. “[T]here is more money around to spend,” Matthew Turner, a precious metals analyst at Macquarie, told the news outlet.

Also helping sales is a slight relaxation in the 80:20 rule. Put in place by the Indian government back in 2012, it mandates that 20 percent of imported gold be set aside for re-export. Along with a concurrent jump in the country’s gold tax from 2 to 10 percent, it put quite a damper on gold sales last year. ”Many jewelers in Delhi and Mumbai witnessed up to a 40% drop in sales last Diwali,” The Wall Street Journal points out.

In terms of just how much India’s interest in gold has picked up, Mineweb states that September saw the country’s gold imports climb to $3.75 billion — that’s about a 450-percent increase from the previous year’s total of $682.5 million and also significantly higher than the August total of $2.04 billion.

Unfortunately, all that increased buying comes with a price. The Indian government originally raised the gold tax and put import restrictions in place because the country’s account deficit was being affected, and now that the 80:20 rule has been loosened, the country’s “[t]rade deficit has widened the most in 18 months, as imports of the metal have surged.”

It’s for that reason that market watchers doubt that the restrictions will be relaxed further — and thus doubt Indian gold buying will rise even more. For his part, Carsten Fritsch, senior commodities analyst at Commerzbank, told CNBC, “[t]he relatively high level of gold imports in September in the run-up to the holiday season could therefore soon ease off again.”

That said, even with India out of the picture, China is still driving a significant amount of gold demand. As Lawrence Williams points out in another Mineweb article, weekly withdrawal statistics from the Shanghai Gold Exchange show that gold demand “has picked up extremely well in China after a good start to the year, but then a marked downturn from March to August.”

He notes that the latest figures show that 68 tonnes of gold were purchased over a two-week period. That may not sound significant, but according to Williams the fact that the buying took place across just five days (due to a long holiday) “could suggest that Chinese demand is indeed soaring enormously.”

Whether that’s the case or not, Williams states that currently, India and China seem to be buying gold “at a rate which probably accounts for close to the full total of global mined supply.” And given that they aren’t the only gold-consuming nations, the “conundrum” of why the gold price is falling remains. “Surely that has to end soon,” he concludes.


Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

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