China overtakes India as no. 1 gold buyer

Major government bonds ticked higher, meantime, nudging the yield on 10-year US Treasury debt down to a 6-week low of 2.68%.

Silver prices were more volatile than gold, moving 2% down from a high of $22.02 per ounce set early in Asian trade.

“Despite ongoing outflows from the gold ETFs,” says German bank Commerzbank in a commodities note, “physical demand from Asia could offer some support to prices.”

Ahead of China’s Golden Week holidays – which officially start next Tuesday – “gold buyers are likely to take advantage of the lower price level to stock up,” says Commerzbank.

Traditionally the largest market for buying gold, “[India] this year it looks very likely to be eclipsed by Chinese demand,” writes SocGen analyst Robin Bhar in a new note today, “possibly by as much as 100 tonnes when all areas of fabrication (and hoarding) are taken into account.

“Part of the reason for this is the explosion in Chinese demand.”

Gold consumers bargain-buying in current world No.1 India should encourage fresh imports, Commerzbank reckons, after a virtual shutdown over the summer.

“The festival and wedding season is just around the corner. [This peak for gold demand] should be even more buoyant this year thanks to a good monsoon [and] preclude any continued slide in the price of gold.”

Neighboring Dubai however – through which 25% of the world’s annual gold flows pass, according to Reuters – has seen trade decline by three-fifths as a result of India’s strict anti-import measures taken in 2013, local dealers report.

“Even once [India’s] imports have re-started,” the newswire quotes a trading house executive, “we will not see the same kind of volumes that we used to see earlier,” when the first-half of 2013 saw flows to India rise 10% from the same period last year.

Thanks to confusion over India’s new import rules – under which 20% of new gold shipments must be set aside for re-export – lack of material saw the value of India’s gold jewelry exports drop almost 60% over the last 5 months vs. April-to-August 2012, the Gems & Jewellery Export Promotion Council (GJEPC) said today.

The world’s largest gold jewelry exporter, India saw a slight uptick in August’s sales from July.

But right now, the “issue is getting the raw material even if they have export orders,” Reuters quotes Colin Shah at Mumbai-based exporter Kama Schachter.

Back in China, “Most jewelers have already stocked up in anticipation of Golden Week,” Bloomberg today quotes Wang Xiaoli at CITICS Futures Co., part of the country’s largest brokerage.

But “physical purchases are steady when prices fall.”