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Strong start to 2010 gold demand in China, India – WGC

BEIJING (Reuters) -

Gold demand by the world’s top two consumers has started strong in 2010, with India’s jewellery industry buying regularly and tighter monetary policy in China not affecting purchases, the World Gold Council said on Thursday.

Gold XAU= accounted for 42 percent of global demand between the October 2008 and September 2009 period of the financial crisis, up from 26 percent the year before, while jewellery demand, a normal mainstay, weakened, the London-based WGC said.

Only China increased its volume of jewellery buying in 2009, while volumes fell by almost a fifth in India and the United States, and by even more in the Middle East and Russia, the WGC said.

But Indian jewellery demand rebounded at the end of the year, showing annual growth in the fourth quarter of 2009, Grubb said.

“We understand that recovery is continuing into the first part of 2010,” Marcus Grubb, managing director of investment research and marketing at the WGC, said at a press conference in Beijing.

China’s moves to tighten money supply by raising bank cash reserve requirements in 2010, after a year of loose credit, would have no impact on Chinese gold demand, said Albert Cheng, the WGC’s managing director for the Far East.

“Going forward, the tightening of liquidity by the central government will have very little impact on the gold market,” he said. “Consumers and retail investors will continue to want to have gold in their portfolios to preserve their wealth.”

He said there were no institutional investors in China, because there were no exchange traded funds for them to invest in, so gold demand was dominated by individuals, whereas about 30 percent of U.S. gold buying was by institutional investors.

China’s government wowed the gold market last year by revealing that it had increased its holdings of the metal to 1,054 tonnes from 600 tonnes in 2003.

China’s $2 trillion in foreign currency reserves and its relatively small gold holdings have fuelled speculation that the government is continuing to buy.

“If China follows the global trend, there will be more investment,” said Cheng.

But China has not taken the bait of 191.3 tonnes of gold on offer from the International Monetary Fund, which has already sold 200 tonnes to India at an average price of $1,054 per ounce.

“Many traders now look at this price as a floor in the market,” Grubb said.

Gold prices have fallen from December’s record above $1,200 per ounce to $1,093.80 at 0725 GMT on Thursday.

Grubb declined to make price predictions but, asked about the chance of gold falling back through $1,000 per ounce this year, he said: “I would be surprised if it were to do that.”…read more at the Mineweb