ROSS NORMAN : CHINA Passes The Gold Baton to INDIA
Back in 2000, Chinese and Indian gold demand was regarded as a bellwether of underlying market sentiment, but collectively they only accounted for less than 20% of total offtake. Interesting … but not essential stuff.
Today, they are north of 50%. They matter.
This reflects major economic growth, market liberalization (especially in China), and the cultural importance attached to gold in both countries. India’s liberalization in the early 1990s and China’s in the early 2000s enabled rapid growth in demand, with China now often surpassing India in tonnage, and both countries together dominating global consumer gold demand. Expanding middle classes and a cultural emphasis on gold as an investment and for weddings/festivals have made their mark. The shift marks a historic transition of gold's centre of gravity from the West to Asia, with India and China now fundamental to the global gold market. That trend has only accelerated with nations seeking to reduce reliance on the US dollar and, by extension, diversify their reserve assets into something safe and neutral – gold. That’s to say that while these countries are world-class in terms of their reported gold imports – there are also unquestionably significant imports that are simply not reported. Reporting is voluntary, not compulsory.
Historically, Indian and Chinese buying were often out of sync with each other. Indian consumers – being especially price sensitive and canny – would enter the market when it represented “good value.” They have an instinctive feel for price action, and their buying could reliably be counted upon to mark the bottom of a move. They are bargain hunters. The Chinese, on the other hand, often seemed more excitable, chasing what was moving up … what was hot … and backing it big time. One sensed they liked to gamble. In reality, Indians and Chinese normally bought around the same price levels; the difference lay in timing. Indians bought the dips, the Chinese bought the recoveries. But times have changed.
Chinese domestic gold demand has shown serious signs of fatigue over the last six months, despite the market moving to record highs, while the normally cautious Indian consumers are buying into price strength. They seem to have reversed roles.
Chinese wholesale demand is currently running at nearly half its 10-year average, while reported central bank buying is so small (1.9 tonnes last month) that it begs the question of whether moving it was even economically viable, while Chinese ETFs have seen net outflows for four consecutive months ; the only bright spot seems to be leveraged speculative positions on the SHFE.
Meanwhile, Indian demand over the last three months has doubled and doubled again (albeit from a low level), with imports estimated at 21 tonnes, 45 tonnes, and 100 tonnes respectively, while prices have risen by 10% over that period in USD (13% in rupee terms). So much for being price-elastic.
And the best is yet to come for Indian demand. There is an average of 10 million weddings per year in India, and we are just moving into the wedding season. Not only is 2025 expected to be an above-average number of weddings, but expenditures are forecast to be much higher given solid economic conditions. Added to this, the monsoon rains have been plentiful this year, promising good harvests and, by extension, strong gold offtake from rural Indian farmers … the backbone of demand. Furthermore, we are headed into festival season of which many are auspicious for buying gold, including Navratri (this week), followed by Diwali and Dhanteras next month, all of which should provide a cyclical surge. India is a strongly seasonal market and we are about to hit the sweet spot.
If further proof were needed about this divergence then it is worth checking out the data published by WGC which shows that Indian gold premiums have been trading at a 10 month high (but currently flat to loco London) while Chinese domestic prices are at a huge discount to the international price, reflecting strong demand in the former and deeply lacklustre in the latter.
So what can we draw from this? Perhaps that things we once thought to be true aren’t any longer. Indian and Chinese behaviors seem to have swapped poisitions.
But what does this tell us about the gold price? Probably less than it should. This is a low-participation, opaque rally where the action is elsewhere – unreported official buying and some sizeable leveraged plays in China. And it is for this reason that gold is less vulnerable to a serious correction than it might otherwise be. Those behind it are high quality, high-conviction buyers, less interested in taking short-term profits on big gains.
And if I am correct, then it also suggests that those normally responsible for establishing a price floor (the Indians) … also still think it’s going up too.
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Ross Norman
CEO
Metals Daily Ltd
www.MetalsDaily.com
ross@metalsdaily.com
