January 28, 2014 7:00 pm JST

Where do you find gold bulls? In China shops

YOSHIHIRO HARA, NQN staff writer

TOKYO -- Global patterns of gold consumption are changing. China in 2013 overtook India as the world's largest consumer of gold.

     Falling prices and rising Chinese incomes spurred demand for jewelry, while consumption in India has slowed. Gold futures in New York have been resilient since the second half of 2013, after hitting the psychologically important level of $1,200 per troy ounce for benchmark contracts.

     According to the latest Thomson Reuters GFMS gold survey, Chinese demand for jewelry gold jumped 39% to 724 tons in 2013, compared with 519 tons in 2012. Indian demand for jewelry gold in 2013 rose 11% from 2012, but it lost steam over the second half of the year.

     The increase in gold demand was largely driven by the decline in prices since the start of last year. For all of 2013, gold futures in New York fell approximately 27%. It was the first time since 2000 that gold futures were lower at the end of the year than they had been at the start.

     Koichiro Kamei of the Market Strategy Institute in Tokyo, said, "Chinese gold consumption grew because the Chinese government shifted its policy to steady economic growth, while the middle-income group continued to grow. Those who (previously) couldn't afford to buy gold are now purchasing it." Beijing is easing regulations on gold transactions by increasing the number of banks that can sell gold. "This encouraged growth in gold consumption as well," said Kamei.

     More investors chose gold as a safe investment, due to the top-heavy Chinese stock market and growing concern over the "shadow banking" issue. Thomson Reuters GFMS said in its gold survey that some mainland tourists were visiting Hong Kong to make large purchases of gold.

     Last year, the Indian government raised the import tax on gold and gold jewelry to curb the country's current-account deficit. That slowed import volume, along with the rupee's fall to a record low in the lower-69 range against the dollar in August.

     Gold prices in New York have been solid since the beginning of 2014. Some market participants believe Chinese imports will continue to rise.