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Chinese and Indian Gold Buying: At the Peak since January 2014

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Apr. 23 2015, Updated 9:54 a.m. ET

Demand drivers

China and India’s gold buying activity increased the most in March 2015, according to data from the Swiss Federal Customs Administration. The data showed that China almost doubled its gold buying to 46.4 metric tons in March 2015. India also joined the party. It doubled its imports to almost 72.5 metric tons from the United Kingdom. This means gold moves from the United Kingdom. It’s refined in Switzerland and shipped to China and India.

Recent Reuters’ data showed that China and India consume 48% of gold. The festival season in India could boost the short-term demand of gold in India. This supports gold prices.

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Gold mining production increased by 2% and gold production was at 3,114 tons, according to the World Gold Council in 2014. Production peaked to a new record in 2015. It’s expected that 2015 will mark another year of massive production, according to industry sources like Goldman Sachs. In contrast, Reuters’ surveys state that production will be flat in 2015.

The average cost to produce gold hovers around $1,000–$1,200 per ounce across major mines in the world. This is a key level for gold mining companies to watch. As prices drop below this level, it could put pressure on revenue. This would cause a liquidity crunch for these companies.

Lower gold prices are negative for gold mining companies like New Gold (NG), Gold Fields (GFI), and Royal Gold (RGLD). These companies account for 10.46% of the VanEck Vectors Gold Miners ETF (GDX). The fall in gold prices also impacts gold ETFs like the iShares Gold Trust (IAU).

The consensus of rising production, the strong dollar, and the improving US economy will continue to put pressure on gold prices.

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