The improving economy in China, and the surge in lending and investment has seen the country’s economy jump sharply this year, spurring suggestions that demand for gold will continue rising faster than previously thought.
That’s after Chinese gold purchases rose in late 2008 and early this year faster than the rest of the world.
Gold hit its highest level on Thursday since mid June, $US957.50 an ounce. It fell $US1.70 an ounce on Friday for Comex August futures at $US955.90.
But demand has been hit by the improving economic conditions and by the northern summer.
In fact the World Gold Council believes China may overtake India to become the world’s top gold consumer in 2009.
Demand for jewellery in China rose in the first quarter, while it dropped sharply in India.
Total demand from India in the first quarter fell to just 17.7 tonnes, from 107.2 tonnes a year earlier, according to figures from the World Gold Council.
Purchases in China rose 1.8% to 105.2 tonnes from 103.3 tonnes.
Total Chinese demand for gold was six times that of India in the first quarter, the council said in its May report.
"By far the greatest contribution to the decline in global jewellery demand came from India, where demand fell by 52% from Q1 2008, which itself had been a relatively weak quarter.
"Traditionally the largest market for jewellery, Indian demand was eclipsed by China as demand dried up, with consumers generally choosing to exchange or sell old gold rather than make fresh purchases.
"With the exception of China and Hong Kong, where demand rose by 3% and 8% respectively, all other markets in Asia experienced a drop in demand.
"Jewellery demand in the Middle East and Europe also suffered a marked decline.
"However, there have been some encouraging signs in Q2 09 in India, possibly due to Akshaya Trithya and the April/ May wedding season.
"Preliminary reports from China suggest demand remained relatively stable, whereas reports from Europe and the US, where consumers have been hardest hit by the financial crisis, have been mixed," the council said.
China consumed nearly 400 tonnes of gold last year, while demand in India was more than 650 tonnes, according to figures from the council and GFMS, the London-based consultancy which provides much of the research and statistics for the WGC’s publications.
Gold prices are up around 8% this year. The slow emergence of a recovery in the major economies and the easing of pressures in financial markets, have taken some of the shine off gold this year.
China is the world’s biggest gold producer and has increased reserves by 76% to 1,054 tonnes since 2003 and has the world’s fifth-biggest holdings by country.
China’s production of gold has risen at rate of 7% to 8% annually over the past five to six years, and this may continue and be enough to satisfy any surge in demand. Imports may rise, but not by as much as others think, the WGC said.
China is looking to boost gold production to around 290 tonnes this year from 282 in 2008.
The council said last week in the first edition of its second quarter Gold report that de-hedging by producers continued to abate in the first quarter and with it the dampening impact on supply.
"Producers shaved just 10 tonnes off the global hedge book, taking the outstanding hedge position down to negligible levels.
"Mine production was also relatively flat during the quarter, rising just 16 tonnes to 560 tonnes.
"The major gold producers have been able to increase their reserves thanks to a combination of high gold prices (which increases the proportion of a resource that becomes economically viable, transferring it into a reserve) and acquisitions.
"However, the industry as a whole continues to suffer from a dearth of major new gold discoveries, despite a sharp pick up in exploration spending.
"Only 1 major new gold discovery (defined as more than 2.0 million ounces) was reported in 2007 and none in 2008, according to Metals Economics Groups, a far cry from the 15 discoveries a year being made ten years ago," the WGC said. More up to date figures will be issued next month by the Council.
Meanwhile Bloomberg reported that China’s copper imports are slowing after record purchases and this could end the big price rally of 2009.
In a report Friday, Bloomberg said the 80% surge in prices for the red metal was now under increasing pressure as China’s first half purchasing splurge slows off.
This has been tipped to happen now for the best part of a month, but obviously one of the major processors now sees it a very real possibility.
Quoting a senior executive at Sumitomo Metal, Japan’s second biggest copper exporter, Bloomberg reported that excessive Chinese imports mean much of the purchased metal was just stored, raising the risk that China may sell it back to the market and depress prices.
The Sumitomo executive said Chinese imports may have exceeded manufacturing demand by as much as 1.3 million tonnes in the first six months of 2009.
Copper is the best performed commodity so far this year and China’s imports in the six months ended June 30 surged 160% from a year earlier, when prices were much higher.
To match the current economic expansion, Chinese copper demand should only be growing by 7% to 8%, or about 400,000 tonnes annually, in line with an expansion in GDP.
But imports of refined copper jumped 401% on year to a record 378,943 tonnes in June, bringing f
