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    South Asia
     Oct 6, 2011

India, China lead gold rush
By Raja Murthy

MUMBAI - Beijing becoming host to Asia's first automatic gold vending machine - in a continent where millions are yet to see the variety that spews paper cash and potato crisps - offers the latest indication of China and India being world's leading gold buyers, despite record fluctuating prices mid-September.

Year-on-year consumer demand for gold in 2010-2011 grew 38% in India and 25% in China, compared with a 7% worldwide growth of gold sales. Global prices are around US$1,650 an ounce after hitting an historic high of $1,921.15 on September 6 on a 6%-plus rise since June.

Accounting for over 55% of global craving for the noble metal, India and China ensure gold remains a trusted refuge of

investment in an ailing world economy, weakened further with the deepening debt crisis in Europe and United States.

On September 25, China joined the United States, Germany, Italy and the United Arab Emirates, in having ATMs that dispense bullion and gold coins. In Beijing's 800-year old Wangfujing shopping district, buyers can now use bank cards and cash to induce the machine to pop out certified gold.

A scanner attached to the ATM recognizes the two-dimensional bar code in each gold bar or coin dispensed. The scarlet and yellow ATM with a touch screen dispenses gold bars and coins of various weights. Prices are based on current market rates and updated every 10 minutes.

Each withdrawal at the Wangfujing ATM is capped at 2.5 kilograms of gold, worth about $156,500. The gold ATM will have no shortage of audience - each day, over a million people visit this 1.5 kilometer stretch from East Changan Street to the China Art Museum.

Gongmei Gold Trading, the company that installed the ATM, expects to install an astounding 2,000 more of such gold-vending machines across China.

"To put residents' cash deposits into gold deposits can reduce cash flow and reduce pressure on commodity prices," Gongmei company president Zheng Ruixiang told state-owned China Daily.

Li Weizhou, operations manager of Gongmei Gold Trading, expects the gold-doling ATMs to be a big hit in China. The plan is to install more of the same in private clubs, banks and landmark buildings in major Chinese cities. By November, the Chinese gold-vending machines are expected to include a gold buy-back facility.

Mumbai might soon join this gold ATM club. India is the world's largest consumer of gold, followed by China, and its overall jewelry market, including diamonds, is estimated at $101 billion, with 60% of it being domestic sales.

India's thirst for gold seems to be growing, having bought a record 963.1 tonnes of gold in 2010, 66% more than the previous year. China consumed 579.5 tonnes of gold, a 27% hike in annual sales, according to data from the London-based World Gold Council.

The world too is seeking more monetary security in gold, buying 919.8 tonnes of the shiny metal worth $44.5 billion in the second quarter of 2011. It was the second-highest ever quarterly value recorded, says the latest World Gold Council's Gold Demand Trends (GDT) report released in August. It was fractionally below a record $44.7 billion in the last quarter of 2010.

India is estimated to own over 18,000 tonnes of gold, about 11% of the global stock. The approximately $1.1 trillion worth of gold nearly equals the $1.2 trillion net worth of its equity markets.

India's remarkable interest in gold makes an odd contrast for a country where over 400 million people subsist on less than a $1 a day. Even post offices have now taken to selling gold, alongside stamps and postcards. India Post aims to sell about one tonne of gold coins in the next two months of festivities, from 700 post offices, at double the quantity of gold coins it sold in 2009-10. The nine-day Navaratri festival began on September 29. Diwali, the festival of lights, follows in October.

"The increase in sales of gold coins is mostly because large companies find them suitable as gifts and incentives," says Mehul Choksi, chairman and managing director of Mumbai-based Gitanjali Gems, the world's largest integrated jewelry retailer. "Individual consumers buy gold coins as a small purchase for maintaining tradition of gifting gold on auspicious occasions."

India's enduring gold rush enabled the prosperous presence of Gitanjali and the other jewelry retail majors like the Tata-group owned Tanishq. Gitanjali has 12 jewelry-making units feeding 3,000 global sales outlets. Among the 60 Indian and international brands that Gitanjali owns, nine of its major Indian brands were recently valued at $1.12 billion.

Now gold is hitting a wider market through coins, such as through China's gold ATMs and India's post offices. "The demand for coins in India, it must be emphasized, is not at the cost of jewelry demand, which continues to be strong across India," Choksi said in an e-mail to Asia Times Online. "Gold coins are being chosen as the best form of corporate gifting, even above other popular consumer products like electronic items, because they hold immense traditional value for Indians, and have a long-term investment value as well."

Choksi, sometimes called the "King of Gold", is known for his innovative thinking. Gitanjali Gems transformed India's gold market from stodgy jewelry shops to being a trendy lifestyle product, with designer brands and slick marketing campaigns.

Choksi has widened operations in China and the US. The latest acquisitions of the Gitanjali Group include the 120-year old San Francisco-based Samuels Jewelers. He plans to expand in China, from the current 20 Gitanjali-branded jewelry stores in cities such as Beijing and Shanghai, to 100 stores in 2012.

While Asia is a traditional gold stronghold, jewelry industry leaders expect India's gold rush to grow by 25% in the coming festive season through to December. India even has two days every year traditionally declared to be as "auspicious" for buying gold, the Dhanteras, before Diwali, and Akshaya Tritiya in May.

Gold grips India to the extent that it is a major investment even in rural India, with smaller towns accounting for over 60% of India's gold purchases.

With India heading to be the world's largest economy by 2050, the future looks golden for gold - despite price fluctuations particularly when investors cash in their gold holdings, to offset other losses such as in equity markets.

Central banks worldwide are raising their gold reserves to hedge against market risk, even as other Asian countries drive up gold demand. Thailand, Indonesia and South Korea had record increase in gold sales in 2010.

While 74% of South Korea's gold consumption of 47.9 tonnes in 2010 went in manufacturing semiconductors for its electronics industries, Thailand used gold more as investment vehicle. Gold bar and coin investment in Thailand rocketed to an all-time high of 51.2 tonnes in 2010, compared to the annual average of 12.6 tonnes for the past 15 years.

Thailand also joined the few Asian countries with stock exchange-traded gold investment instruments, to hedge against the fluctuating US dollar. Its Thanachart Fiscal Gold Funds in March 2011 joined Hong Kong's Value Gold and the Japanese Mitsubishi "Fruit of Gold". By August, within five months of its launch, Thanachart had doubled its gold assets.

(Copyright 2011 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

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