As Asian markets drop, is a comeback imminent for the year’s big loser, gold?

Demand for gold will rise during India's festival season.
Demand for gold will rise during India's festival season.
Image: AP/Tsering Topgyal
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Asia’s stock markets dropped sharply Tuesday, the second day in a row, as nervous stock market investors continued to pull money out of emerging markets, headed towards higher US bond yields. India’s rupee hit yet-another low at more than 64 to the US dollar, before the central bank stepped in to strengthen it by selling dollars and markets in Hong Kong and Shanghai fell.

The impact was devastating for some markets and currencies, particularly in Thailand and Indonesia, but could add strength to a surprising recovery for the year’s biggest loser, gold. An extended market rout in Asia could signal even more gold buying, analysts said, as consumers in China and India eager for safe investments and spooked by uncertainty push more money into gold.

The once-moribund gold market showed fresh signs of strength after Monday’s market declines, with futures prices hitting the highest levels in more than seven months in India and bearish investors cutting positions. On Tuesday, gold futures prices moved slightly lower in early trading in India, but farmers expecting a bumper crop this summer are expected to boost demand shortly.

Chinese aunties,” and “Indian aunties,” gold-buying consumers in both countries who, yes, are often money-conscious older women, helped keep gold prices from crashing in the second quarter. Chinese investors bought up $5.6 billion in bars and coins weighing 123 tons, some 125% more than the year before, with the “Indian aunties” close behind, snapping up some 116% more bars and coins in the second quarter to hit 122 tons.

The combined buying power of millions of thrifty, older women, in the face of sell-offs by big Wall Street funds and firms is seen as a triumph in Asia. “Asian Aunties had a slight win against Wall Street,” the FIrst Financial Daily proclaimed (link in Chinese). “An evident watershed had appeared in the second quarter of the global market; that is western gold shifting eastward,” wrote Albert Cheng, the Far East Asia managing director of the World Gold Council said.

The UK, center of the world’s gold trade sent 798 metric tons of gold to Switzerland, the world’s gold refining hub, in the first six months of 2013, up from 83 metric tons in the first half of 2012. Swiss refineries are melting down 400oz bars into smaller sizes preferred by Asian customers, and “running  three or four shifts to keep the refineries going non-stop,” one gold trader told the Financial Times.

Apple is even rumored to be rolling out a gold-colored iPhone in China this fall.

Gold buyers in India, normally the world’s top consumer of the yellow metal, have been hampered in recent weeks by increased import duties designed to help alleviate the country’s current account deficit and confusion about new import rules. But those rules were clarified Monday.

And the import duties could only shift their buying elsewhere. The gap between prices in Dubai and India is now so wide that Dubai jewelers predict India’s resourceful aunties will soon find a way to import gold on the cheap. “Authorities at Indian airports are lenient,” the head of a UAE jewelry company told Gulf News. Dubai jewelers are preparing for a robust Diwali, the festival of lights.

Jennifer Chiu contributed reporting.