China is set to usurp India as the world’s largest gold consumer this year, according to forecasts from the World Gold Council (WGC) on Thursday, as a slide in the rupee's value and strict import curbs saw India’s gold demand drop by nearly 24 percent.
In a study, the WGC reported that China had already imported 797.8 tons of gold up till September 30 this year, while Indian demand stood at just 715.7 tons.
Chinese gold imports are expected to grow further to 1,000 tons by the end of year, while Indian will purchase around 900 tons.
"The administrative measures that the Indian government has imposed on the market have proven to be quite effective and imports have slowed down," Albert Cheng, the WGC's managing director for the Far East told Reuters.
India, grappling with a high trade deficit and a weak rupee, imposed a series of measures in April to crimp demand for the precious metal – the second most expensive item on its import bill after oil. Nearly all of India's gold demand is met by imports and paid for in dollars.
In addition to a ban on imports of gold coins introduced in August and a progressive increase in import taxes, Indian importers have also since July been required to re-export 20 percent of all gold they take delivery of.
However, the WGC warned that gold was still coming into India through unofficial channels – including smuggling.
"We have seen some increases in demand in other countries which have close links with India, some of which may be making its way back to the country through illicit channels, which have reopened in recent quarters following a long period of inactivity," said Marcus Grubb, managing director of investment at the WGC, to the Wall Street Journal.
Meanwhile, demand from China has jumped nearly 40 percent this year as the appetite for jewellery, bars and coins increased sharply due to the sharp drop in gold prices.
Cheng predicted that China would import more gold as fresh reforms opens up competition in the sector. The People's Bank of China, which oversees gold trade in China, said in late September that it would relax some rules governing gold imports and exports.
Additionally, fourth-quarter demand will also remain strong as buying picks up ahead of the Chinese New Year at the end of January, Cheng said.