Gold prices are biased higher as Asian demand converges with the Wests
According to some metrics China lost its crown as the worlds No. 1 gold consumer to India a couple of years ago, but get ready for the tables to turn once more, says the China Gold Association.
Why? Because Chinas demand is increasing while production in the worlds top gold-mining nation is dropping. Looking back at 2015, the association found that Chinas gold-mining output fell for the first time in its history even as consumption rose.
Just over 450 metric tons of gold were produced last year, down 0.4% from 2014. Like other miners across the globe, the lower gold prices of recent years have curbed output as companies have been forced to cut costs to survive.
Meanwhile, consumption increased by 3.7% to almost 986 tons in a turning point of renewed interest. Thats below the associations official record of 1,176.4 tons set in 2013, but the trend is reversing positively.
Growth trend to resume: Affected by falling gold prices, Chinese gold output in 2015 saw negative growth for the first time, but China remained the worlds biggest gold-producing country for the ninth year in succession, the association said.
It can be predicted that in the future, Chinese gold consumption will resume its growth trend and China will maintain its position as the worlds No. 1 gold consuming nation, it affirmed.
Jewelry demand rose 2.1%, while consumption of bars increased by 4.8%, but the real winner was in the bullion-coin sector, which saw a 78% leap higher.
Asia accounts for half of demand: Assessing the recent revival in gold, Reuters columnist Clyde Russell sounded cautiously optimistic in a recent analysis titled Bulls may win gold tug-of-war in China, India.
Western gold investing has picked up this year as the global stock market has tanked, and thats a good sign for the metals near-term prospects. However, Asia remains key.
For any rally to be sustained, much will depend on the reaction of consumers in the two Asian giants, India and China, the worlds biggest gold buyers that together account for almost half of physical demand, he wrote.
So far, so good, Russell conjectured. The depreciating yuan and plunging stock market have driven many Chinese investors back into gold.
Little doubt India will buy: Meanwhile, in India, government attempts to curb demand in order to rein in the nations current-account deficit are backfiring.
Will Indias gold imports grow strongly in 2016, matching the 10% growth achieved in 2015? Russell asked. Theres little doubt the demand is likely to be there.
Russell concluded: Overall, the picture that emerges from the worlds top two consumers is that the risks for 2016 are toward higher gold demand, but be wary of poor economic outcomes in China and the chance of more stringent policies in India.
This means Asian physical demand may well be pulling in the same direction as Western investment demand in 2016, adding to the case that gold prices are biased higher.
This great convergence between Western and Eastern investors is precisely the spark thats needed to send gold back to its all-time nominal highs around $1,900 and the potentially higher.