Bullion Bulletin: China and India gold purchasing

At the start of 2022, the World Gold Council (WGC) took a cautiously optimistic view of the prospects for China’s gold buying this year. Wang Lixin, the Council’s managing director in China said in January the “relatively stable gold price outlook will provide support for gold jewellery demand in China’s market for 2022”. Much has changed since January, not least in China – gold demand this year will be hit by the country’s zero-Covid policy.

Gold demand in China, which vies with India for the position of the world’s biggest gold consumer, was hit by the Covid-19 pandemic in 2020. Last year saw a big rebound in its gold imports, which were 36% higher than in 2020 at 818 tonnes, according to Chinese customs’ data.

Similar growth cannot be expected this year. China’s macroeconomic data from April were alarming: real estate activity collapsed, with construction starts falling 44%; export growth was 4% against 15% growth in March; and retail sales were down 11% year-on-year, against an expected decline of less than 7%. Xi Jingping’s China increasingly resembles that of Mao Zedong – the authority of the communist party is as important as the economy. President Xi’s zero-Covid policy with its enforced lockdowns is hitting everything from microchip production to consumer purchases. China has an official growth target for 2022 of 5.5%, which would be its lowest official target in three decades, but without a rapid easing of its lockdowns it will struggle to achieve that.

In India it’s the recent high price of gold that’s having a negative effect on gold demand. The WGC Q1 2022 Gold Demand Trends report says that India’s gold demand in that quarter fell by 18% to 135.5 tonnes against the same period of 2021. The WGC attributed the decline to higher prices, which it said rose by 8% in the first quarter, to more than Rupees 140,890 (around $1,817) per troy ounce. The Reserve Bank of India (RBI) bought eight tonnes during the first quarter of this year; the central bank began buying gold from late 2017, and since then, has bought 200 tonnes.

The International Monetary Fund (IMF) in its latest World Economic Outlook growth projections sees India’s economy this year growing almost twice as fast as China’s, 8.2% versus 4.4%. In 2021 India’s economy registered 8.9% growth and China’s 8.1%. Last year, according to the WGC, global gold demand rose by 10% year-on-year, thanks largely to a staggering 50% surge in demand in the final quarter of the year. Russia’s Credit Bank of Moscow (MKB), one of the country’s biggest private banks, has obtained a gold export licence from the government, becoming the latest Russian bank to turn to precious metals to try to offset the impact of sanctions.

Central banks have been adding gold to their portfolios in the past few years according to the IMF. Interest in the diversification of assets, away from the Dollar, has increased after Russia’s invasion of Ukraine incurred international sanctions against the former. Thailand’s central bank added 90 tonnes of gold last year, one of the highest purchases among emerging markets.