The world second largest economy, China is estimated to be the largest importer, consumer and producer of gold this year. It has nearly doubled the gold imports this year leaving behind India which was the largest consumer last year. China is estimated to have imported 864 tons and is on a row to exceed 1000 tons this year.

The increase in the economic condition of China with the downgrade of the US economy and a slow recovering Euro zone from crisis has benefitted China. The downfall of the gold prices this year by 20% has increased the demand of gold in the Chinese economy. On the other hand, with the fall in price of gold a rebalancing force has played a role in the Western countries. The institutional investors lost faith in the bullish trend of gold and ripped their positions from gold-backed exchange traded funds. This condition as seen can be the effect of the Fed’s reduction of stimulus known as QE as it made decision beyond the expectation of the investors. The record of 2700 tons at the starting of this year in the ETF funds for gold sank to about 2000, thus slanting towards the bullion price. Thus the counterbalancing of the gold demand from China is balanced by the reduction of the investors demand in ETF funds from Western countries.

The Chinese indicators this week showed the improving economic condition. HSBC Final Manufacturing PMI showed a slower rise in manufacturing output with 50.2 in September compared to 50.1 in August showing a slight rise in the operating conditions over the economy in the manufacturing sector. Similarly, the next index manufacturing PMI for non-manufactured sector rose to 55.4 in September from Augusts’ 53.9 whereas the HSBC Purchasing Managers’ Index accounted at 50.2 compared to 50.1 from August data illustrating a partial increase. The reasons for the increase in the indices are due to the output growth straight-forwarding to partial pace. The new businesses increase from abroad and rise in purchasing capacity in the succeeding month do support the indicators.

The service sector which has been accounted for 45% of the Chinese economy and has been one of the nuisance for other economies to maintain the level; the Chinese government has set the economic growth target to be met by increasing the consumption level within the economy. The surplus BOP accounted country has been seen on a trend of increasing the gold reserves and cutting back the US treasury bonds holdings diversifying its portfolio. How much gold still enters Chinese economy is yet to be seen as demand from both the government and individual is seen rising in the current scenario with the bearish gold prices.