As West's gold paper price falls, metal gets scarce in Asia
By Jack Farchy
Financial Times, London

A spike in gold buying by Asian investors has created a scarcity of investment-grade gold bars in the region, supporting prices even as Western investors trim their holdings.

Traders said that gold sales to China had jumped 30 to 50 per cent since Christmas, driving the cost of kilo bars in Hong Kong more than $3 per ounce above the market price of gold, the highest level since 2008 and an indication of the tightness in the physical market.

"Physical demand has rocketed in China at the start of the year," said Walter de Wet, head of commodities research at Standard Bank.

The wave of Asian buying has propped up gold prices at about $1,360 a troy ounce, traders and analysts said.

The metal's price has dropped 4.6 per cent from its December record price of $1,430.95, trading at $1,364.10 on Friday, as optimism about prospects for U.S. growth has led Western investors to turn their attention away from gold to other commodities and equities. "We have a balanced situation where one part of the world is buying and the other part is selling," said a senior trader in Hong Kong. Chinese and Indian investors are increasingly turning to gold to protect savings against sharply rising food prices.

Investor buying of gold bars jumped 80 per cent to a record 144 tonnes last year in India, according to GFMS, the precious metals consultancy, while across east Asia bar hoarding was up 125 per cent at a 15-year high.

In another sign of the booming investment demand for gold in the region, China's first exchange-traded fund to offer exposure to physical gold, launched last month by Lion Fund Management, announced this week that it had already achieved its target of raising $500 million.

The tightness in the Asian market is likely to persist until the end of the month, traders said, as some refiners have booked out production until February and Chinese demand remains robust ahead of the new year holiday.