growth in the jewellery and bar/coin markets, China has increased its absolute demand for gold rapidly over this period; tonnage demand in the final quarter of 2012 was triple that of the first quarter of 2005, while approximate yuan expenditure rose by a factor of nine. With the government continuing to open up the gold market (including the possibility of a gold exchange-traded fund in China later this year), we should be able to expect local Chinese expenditure on gold to continue to increase.
Indian demand arguably withstood tariff rises in 2012
India's gold demand growth was slower than that of China over the period, reflecting the fact that the Indian gold market had opened up dramatically in the 1990s, and its world market share in jewellery and in bars and coins has, arguably, reached a degree of maturity. It remains to be seen whether the Indian government's recent tax moves, designed to reduce hoarding and to mobilise local holdings into gold-related financial instruments, bear fruit given the religious significance accorded to gold in India. Approximate quarterly expenditure in rupee terms in 2012 compared with 2011 would suggest that the increase in tariffs in the first quarter of 2012 had little long-term deterrent effect, with average rupee expenditure on contained gold running some 9 percent higher than in 2011. From the first quarter of 2005 to the final quarter of 2012, tonnage rose by 30 percent and expenditure by a factor of six.
So is grass roots demand outgunning "professional" selling?
In the middle of February the answer to the above question has clearly been, "No". In the longer term the impact of "grass roots" gold buying, in East and South Asia especially, will be more effective in that it will ultimately put a floor under the gold price, so a more measured response to the question may be "Not yet". There is also a markedly bullish element to the fundamentals of the market in terms of net central bank purchases, while also for the first time in many years the financial position of some of the major gold miners has been attracting attention to the supply side. Recent bearish sentiment has seen gold touch seven-month lows amid persistent investor selling, as exemplified by ETF and Comex exposure numbers.
CFTC figures for Feb. 19, when the Comex first position gold closed at $1,603.60, showed outright non-commercial and non-reportable long positions at 410 tonnes, a fall