China and India rank one-two in global gold consumption, and through the first quarter of 2021, gold demand charted an impressive rebound in both countries.
China’s year-on-year gold consumption surged 93.9% as first-quarter demand rebounded to pre-pandemic levels. Meanwhile, official Indian gold imports hit the highest level in a decade in March.
Demand for gold in both India and China took a hard hit due to COVID-19 and their governments’ response to the pandemic.
Gold demand in India has languished for the last couple of years. The pandemic crushed demand, particularly for gold jewelry, but record-high gold prices in rupee terms and government policy put a drag on the gold market even before COVID-19. There were signs of a turnaround late last year and it continued through the first two months of 2021.
Gold imports into India came in at 164 tons in March, according to the World Gold Council. This followed on the heels of 91 tons of gold imported in February. It was only the third time over the last 10-year period that official imports have exceeded 150 tons on a monthly basis.
According to the World Gold Council, “Robust retail demand – on the back of the lower gold price and wedding demand – along with re-stocking by jewelry manufacturers and retailers, are the factors responsible for driving official imports to such a high level.”
Retail demand for gold in India was robust in Q1, as evidenced by increasing premiums. With a significant pick-up in retail demand, the monthly average premium in March jumped to $4.20 per ounce compared to an average of $3.30 an ounce in February.
Gold also continued to flow into Indian-based ETFs in March. Total holdings for Indian gold-backed funds reached 31.8 tons by the end of March, a net inflow of 1.6 tons.
As we reported recently, policy shifts announced by the Indian government in its Union Budget earlier this year will likely have a positive impact on the country’s gold market. These include a reduction in the gold import duty, some regulatory changes, and income-boosting welfare schemes for rural Indians.
A further recovery in the Indian gold market would further boost global demand and would be supportive of gold prices.
China ranks as the world’s gold consumer, but imports plunged during the coronavirus pandemic as local demand for the yellow metal dried up. The Chinese economy rebounded during the second half of 2020, and demand for gold coins, bars and jewelry has recovered.
According to the China Gold Association, gold consumption in China came in at 288.2 tons in March. That compared with 148.63 tons a year ago.
“Recovery in macro economy and falling gold prices have also extended enthusiasm towards gold investment,” the China Gold Association said in a statement reported by Reuters, adding that demand for industrial used gold increased as well.
There is also a supply squeeze in China. Chinese gold production fell 9.92% year-on-year to 74.44 tons in Q1. According to the China Gold Association, two gold mine accidents led to shutdowns for safety inspections, driving the decline in gold output.
China recently gave the green light for the import of 150 tons of gold valued at around $8.5 billion at current prices. The report notes that China’s sudden appetite for gold could potentially “support global prices.” Reuters called the size of the expected Chinese gold imports a “dramatic return to the global bullion market.” In 2019, China imported about 75 tons of gold per month. Imports plunged in February 2020, falling to about 10 tons per month.