The rout in gold that wiped out $56 billion of value this year is spurring consumer demand in China and India, the biggest buyers, and leading JPMorgan Chase & Co. and Bank of America Corp. to say prices are bottoming.
Sales of jewelry, coins and bars will reach as much as 1,000 metric tons in India and China in 2013, valued at a combined $87.6 billion, the World Gold Council estimates. Prices will average $1,300 an ounce in the fourth quarter, or 4.6 percent less than now, the median of 17 analyst estimates compiled by Bloomberg shows. Bank of America is the most bullish, predicting a fourth-quarter average of $1,495, and JPMorgan anticipates rising averages in every quarter through the end of next year.
While investors from John Paulson to George Soros sold after the bear market began in April as some investors lost their faith in gold as a store of value, the slump boosted sales in Asia. Australia & New Zealand Banking Group Ltd., Deutsche Bank AG and UBS AG opened vaults in the region this year and U.K. bullion exports rose eightfold, a sign to Macquarie Group Ltd. of the flow of metal from west to east. Asian buyers are being attracted by prices that are now 29 percent below the record $1,921.15 reached in September 2011.
“Whenever we have a bit of idle cash, we think of buying a few pieces,” said Wang Xiang, a 70-year-old from the eastern Chinese province of Anhui, as he bought a gold pendant for his grandson in Beijing’s Caibai Jewelry store, the nation’s largest by sales. “We don’t know how to invest otherwise and that’s the traditional way of preserving wealth.”
Gold tumbled 19 percent to $1,360.08 in London this year, poised to end a 12-year winning streak during which prices rose as much as sevenfold. It is the third-worst performer, after corn and silver, in the Standard & Poor’s GSCI gauge of 24 commodities, which fell 0.8 percent. The MSCI All-Country World Index of equities climbed 7.8 percent and the Bloomberg U.S. Treasury Bond Index lost 3.9 percent.
The metal rallied 15 percent since reaching a 34-month low of $1,180.50 in June as sales from exchange-traded products slowed and jewelry demand strengthened. Indian and Chinese consumer demand may be 900 to 1,000 tons each this year, the gold council said. That would beat China’s 2011 record of 778.6 tons and be near India’s all-time high of 1,006.5 tons in 2010.
Premiums paid by jewelers for physical supply rose to a record in India and jumped fourfold in China as the flow of metal to the region failed to keep pace. Purchases advanced 45 percent to 571.2 tons in the first half in China and 48 percent to 567.5 tons in India, the London-based gold council estimates. Global demand expanded 32 percent to 2,040.2 tons.
Investors sold 23.2 tons from gold-backed ETPs since the start of August, set for the smallest outflow since January, according to data compiled by Bloomberg. That took this year’s drop to 683.6 tons, close to the 700 tons that Barclays Plc expects to be sold in 2013. The bank predicts no change in ETP holdings in 2014.