For the first time, China has surpassed India in gold consumption.
Rising middle-class incomes in China and its sound current account deficit are the prime factors behind the spurt. China's "surplus" current account deficit does not warrant import curbs like in India, explained Indian officials monitoring gold imports.
It is not just Indian consumers who are in love with gold jewellery; the Chinese too love their gold. It is on the back of a favourable policy and surging demand for jewellery, coins and bars that China managed to dethrone India.
In 2013, while China's overall demand for gold stood at 1065.8 tonnes, India's was a tad lower at 974.8 tonnes as per the World Gold Council (WGC) report. Consumer demand in China was up 32%, compared with India's 13%.
"In fact, it is not just an aberration. Going ahead, China's demand for gold is expected to exceed India's in the coming years," PR Somasundaram, managing director (India), WGC, said.
While India's demand for 2014 is expected to be around 900-1,000 tonnes, for China, it is expected to be between 1,000-1,100 tonnes. The fact that the Chinese government has been looking at liberalising gold import norms will also help in pushing up demand. Moreover, internationally gold prices posted the biggest annual drop since 1981. That too has helped in boosting demand.
With official import curbs, not surprisingly, smuggling in India has increased. WGC believes gold smuggling in India would be to the tune of 150-200 tonnes. Though official imports have come down from 860 tonnes in 2012 to 825 tonnes in 2013, the demand for yellow metal continues to rise.
The WGC report says "official statistics show a 63% year-on-year decline in gold imports between July and October, following the introduction of the government's measures to limit gold imports. However, the Indian gold market is fed by a number of alternative sources, including recycled gold, domestic production and unofficial imports".
"India's love affair with gold is a culmination of several factors and it will continue. This is also because apart from the jewellery demand, the investment demand continues to remain strong," Somasundaram said.