China Seen Overtaking India As Top Gold Buyer

China will likely surpass India as the world's largest gold buyer in 2012, following up a year in which global demand for the precious metal rose to a record as safe-haven demand increased on the back of global economic uncertainty, the World Gold Council said Thursday.

World gold demand rose 0.4% to 4067.1 metric tons in 2011 from 4050.7 tons the previous year, helped by a 5% increase in investment demand, which hit a record of 1640.7 tons valued at $82.9 billion, the WGC said in a statement.

The WGC said buyers paid a total of US$205.5 billion for gold in 2011, also a record. 2010 demand for gold valued at US$159.5 billion.

India, China and Europe were the main drivers of investment demand, which comprises the purchase of gold bars and coins as well as exchanged-traded funds, the WGC said, as the protracted debt crisis in Europe heightened the yellow metal's appeal.

Growing wealth in China, where gold is traditionally favored, has combined with economic uncertainty as well as inflationary pressure to spur rapid growth in the country's demand for the precious metal, which investors view both as a commodity and as a store of value in times of uncertainty.

In 2011 China's gold demand jumped 20% to 769.8 tons, of which investment demand was particularly strong, soaring 69% to 258.9 tons valued around CNY84.5 billion. Demand for physical gold and coins in China, the second-largest consumer of gold after India in recent years, remained robust, the WGC said.

"China jewellery demand increased every quarter of last year and was the largest single jewellery market worldwide for the second half of 2011," it said, adding that long-term fundamentals for gold remain strong due to rising demand as well as tight supply.

"It is likely that China will emerge as the largest gold market in the world for the first time in 2012," WGC Managing Director Marcus Grubb said in the statement.

Spot gold hit a record of US$1,920.94 a troy ounce in September, well up from its 2011 low of US$1,308.45 a troy ounce in January, with the precious metal having risen as equity markets and other risk assets tumbled due to concerns over the health of the U.S. and euro-zone economies.

Central banks continued to be net buyers of gold, topping up their gold reserves by 439.7 tons in 2011 from 77 tons a year earlier, the WGC said, reflecting the need to reduce their dependence on traditional reserve currencies such as the U.S. dollar as well as "to rebalance reserves and ultimately protect national wealth."