Tag Archives: precious metals

A Glittering Year For China’s Gold Bugs

Demand for gold in China rose by 20% last year, according to the World Gold Council’s latest Gold Demand Trends report. Some of that reflects a long-standing Chinese affection for the metal; some a newer obsession with all things conspicuously luxurious. The Council says Chinese consumers bought 510.9 tonnes of gold jewelry in 2011, worth $25.8 billion and a 13% increase over the previous year (the global market shrank 3%). China surpassed India as the world’s largest market for gold jewelry in the second half of last year, the Council says.

The fastest growing demand for the metal in China came from investors, however. Only a slither of that is likely accounted for by the People’s Bank of China. Globally, central banks more than quintupled their net gold buying last year from 2010’s levels, to 439.7 tonnes, to diversify their foreign-exchange reserves and reduce exposure to the travails of the two main reserve currencies. However, China’s is not among eight central banks the Council names as prominent official buyers, with Mexico and Russia’s accounting for nearly half of net central bank purchases.

Individual Chinese are now able to buy more easily through both the official exchange in Shanghai and unofficial exchanges in other big cities. They were the driving force behind China’s investment demand in 2011. In a year that saw the gold price hit a record of $1,895 an ounce in September before falling back, consumers bought a record 258.9 tonnes of gold bars and coins, worth $12.9 billion, up 38% on 2010’s purchases.

Domestic investors saw gold both as a traditional hedge against the year’s high inflation and as a better alternative than stocks, property or cash savings in an uncertain year. The appreciation of the currency meant the metal’s price rose by only 4.3% in yuan terms over 2010 compared to its 8.9% rise in dollar terms.

With the gold price pulling back 15% from its record high, authorities cracking down on illegal trading and inflation moderating, will China’s gold bugs be as bullish in 2012? “Signs of economic slowdown in China, and the increasing maturity of the market, are likely to result in a deceleration of recent growth rates, evidence of which was already coming through last quarter,” the Council warns.

This is an edited version of a post first published by China Bystander.


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China’s ‘Private Gold Hoarding Boom’

China is approaching another ‘world’s largest’ designation, this time world’s largest consumer of gold, a title currently held by India. Since August, when the government made it easier for consumers to buy gold and more banks to import it, demand has soared in what is already the world’s largest gold producer as investors have sought insurance against rising inflation, falling property and stock markets and uncertainties over currencies from the yuan to the dollar to the euro. A bull market in bullion won’t have hurt, either.

Shen Xiangrong, chairman of the Shanghai Gold Exchange, describes the situation as a “private gold hoarding boom“. Shen said that the gold transaction volume on the exchange in the first 10 month of this year, at 5,015 tonnes, was 43% higher than in the same period of 2009, with transaction values topping 1.3 trillion yuan ($195 billion). China does not normally make public its gold trade figures, but Chen, who was speaking at a gold conference in Shanghai, said that imports in the first 10 months of this year were 210 tones, a 480% increase on the same period a year earlier.

On an annualized basis, China’s gold imports would reach 250 tonnes this year. Applying a simmer projection to the official gold output numbers, domestic production could reach 325 tonnes for 2010. Combine the two and it puts China, at 575 tonnes, up from 400 tonnes in 2009 and stealing up on upon India’s total gold demand last year of 612 tones. India’s imports, too, have been on the rise this year, so its overall demand is likely to have increased, as well, but it seems a case of when, not if China’s demand overtakes it. A measure of how far China has been satiating its appetite for gold is that a decade ago demand was 200 tonnes.

With world gold prices touching (nominal) highs, Chinese investors are going to be exerting increasing influence on the gold price. The Shanghai Gold Exchange is studying new products such as spot options and exchange-traded certificates to exploit the new interest, Shen says.

Another potential purchaser of gold is the central bank. Xia Bin, an advisor to the People’s Bank of China, has echoed recent calls for the bank to add to its gold reserves as a way to boost the credibility of the yuan’s internationalization. Gold accounts for 1.6% of the reserves held by the People’s Bank of China, according to the World Gold Council. With $2.65 trillion in foreign-exchange reserves, it has plenty of cash with which to increase that share.

The post was first published on China Bystander.

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