The bullion market and gold-related exchange traded funds may not receive a boost from China this time around, with Chinese investors sitting on the sidelines after a major buying spree last year.
Year-to-date, gold-related ETFs like the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) have gained a little over 1.2% and have declined over 6% in the past month.
China overtook India as the world’s largest gold consumer for the first time in 2013 after a 28% plunge in gold prices triggered a buying frenzy, Financial Times reports.
However, Chinese consumers have held off on further gold purchases this year. According to Thomson Reuters GFMS, Chinese jewellery fabrication demand plunged 22% to 351 tons over the first half of 2014 as consumers worked through the “extra purchases during the frenzy of 2013.”
“From the grassroots standpoint, much of the Asian market overbought gold in the price falls of 2013, effectively bringing forward purchases that would otherwise have been made in 2014,” the Thompson Reuters’ annual gold report said. “Consequently, there has been little pull on the international market from this part of the world.”
Moreover, the gold market is experiencing less of a pull from Chinese demand as the lack of price volatility, slowing economic growth and crackdown by Chinese officials on corruption also weigh on the market.
“Softer economic conditions, along with a relatively stable price environment, also help to explain this year’s weakness,” according to the report. “In addition, the measures by the Chinese authorities in targeting corruption and the gifting culture also impacted on demand.”
In India, retail demand for gold also declined 18% to 296 tons as import quotas aimed at diminishing the country’s current account deficit pressured demand.
Consequently, GFMS calculates that physical gold buying among retail, central bank and investors could decline 15.9% to 4,174 tons in 2014, compared to the record 4,957 tons last year. The analysts also expect gold prices to average $1,250 per ounce over the remainder of the year, with any dips to find support from increased demand out of Asia and the Middle East. [Bearish ETFs for Gold’s Lost Luster]
COMEX gold futures were hovering around $1,227 per ounce Thursday.
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Max Chen contributed to this article.