Indian, Chinese Demand Way Up In 2010; World Demand Increase Outpaces Supply

The World Gold Council has reported that mainland Chinese demand for investment gold increased 70% last year, making investment demand there higher than in Germany or the U.S.

“The main motivation behind this demand has been concern over domestic inflation pressure and poor performance of alternative investments, combined with expectations of further gold price gains,” the council’s report said....

Consumption in China, the second-largest buyer, may gain 15 percent in the first half, fueled by growing demand for alternative investments and a hedge against inflation, the China Gold Association’s deputy chairman Zhang Bingnan said last month.

Jewelry demand gained less, and it's still the lion's share of total demand: 400 tonnes. Investment demand was 179.9 tonnes.

As for India, total demand rose a brow-raising 66% to 963 tonnes. This increase took place in the face of a near 30% increase in gold's price for the year.

"Last year has been a great year for gold globally, and especially for India and China. India emerged as the strongest market with total demand rising by 66 per cent at 963-tonnes amid strong economic growth. The outlook for this year is also robust," WGC's Managing Director (Middle-East and India), Ajay Mitra, told reporters here today.

As for global demand, it reached a ten-year high like gold's price did. Overall, demand was up 9% from the previous year for a total of 3,812.2 tonnes. Global jewelry demand was up 18%, but investment demand shrunk. Demand outpaced a supply increase of 2% in the same timeframe.


A little more than a year ago, when gold corrected from its then-record high of about $1,225, there was lots of worry about investment and jewelry demand fading away because of higher prices. In retrospect, that worry now looks quaint. Thanks to the staying power of the bull market, demand has gone up more than supply in a year when gold went on to even higher highs. There's some indication that higher prices may be adding to demand, making the bull market somewhat self-reinforcing. It would be more accurate to say that rising prices validate the reasons given for gold to keep rising, but "self-reinforcing" makes the point.

Just a long-term warning: auto-catalysis is the feature of a mania in the making. Those warning about gold being in a bubble can be taken in this way: if the rug gets pulled out from gold by a genuine change in monetary and fiscal conditions, the metal will fall hard. But, that rug-pulling is unlikey to occur before the blow-off stage of the bull market. Consistent with mania is such steps being taken in plain view with almost no-one believing they'll work.