China, the new gold king!
Published on January 11, 2010 at 17:25
MUMBAI/BEIJING (Commodity Online): In 2009, China pipped India to the post in gold consumption. Till now, India was the leader in gold consumption with around 700 tonne imports per year. But, the high prices and a slump in demand for jewellery caused India yielding the numero uno position in gold consumption to China.
And, it is time India take note of this and give a thought to the reason for this craze by China for gold. What is the reason for China to buy much gold in 2009 than the previous years.
The main reason for China to buy gold is that the Dragon has lost faith in dollar and they want to hike their gold reserves. Dollar is no more a favoured option for China to keep its reserves. China has a kitty of over $2 trillion, mostly greenbacks.
China thinks that dollar may well become a dud, given US’s economic troubles. So, China wants to stock up on something the value of which does not change with one country’s policy moves. And, the best option is gold.
According to media reports, since 2003, China has been buying gold excavated and refined locally. It was a perfect strategy. No one in the international market became the wiser and the bill was paid in yuans. Now, China has more than 1,000 tonnes in its official vaults, up 75% in six years.
Its gold reserves are now the fifth-largest among national central banks after the US, Germany, France and Italy.
Beijing also started actively encouraging people to invest up to 5% of their income in gold and silver. The biddable Chinese have diligently followed this advice. Full-year 2009 private demand in mainland China could outstrip India by a fifth.
China is stepping up efforts to extend consumption in rural areas, including the newly-wealthy people who are trying to own top brand gold for social status purposes.
Over the next decade, more Chinese will buy gold, at a time when inflation is almost certain to be high, adding to its appeal. In short, China can permanently alter gold’s global demand-supply equation.
As top producer and consumer, surely China should control gold prices the same way it has changed the game in metals and soft commodities. But it didn’t. That’s because with no real end-use, gold’s price is derived more from the nebulous value the market ascribes it and competing investment opportunities rather than the iron laws of physical demand-supply. China’s impressive physical numbers tend to leave traders cold.
Instead, what really gets them jiving is the sentiment that China signals to the world. China is buying gold because it is nervous about the US dollar, and this fear is contagious. Investors in India and round the world have started accumulating gold too. The subsequent price spike, itself fraught with risk, then becomes almost a self-fulfilling prophecy. So, China’s buying definitely added to the 28% (in rupee terms) spurt in gold prices last year.
China’s real power comes from its hard-headed attitude. Chinese families may have just figured the virtues of gold as a safe haven, while we have passed it down generations to survive war, unemployment, debt, crop failure and marital break-up. But here is the nub: we hate selling gold. For the Chinese, sentiment doesn’t come into it, at least for now. Plus, they are far more market-savvy.
If the timing is right, they may well encash their investment. No fund manager or trader can afford to ignore this chilling fact. China’s growing presence in the physical gold market is awe-inspiring. But China’s pragmatic approach to gold makes it the really big kahuna.
Published on January 11, 2010 at 17:25
MUMBAI/BEIJING (Commodity Online): In 2009, China pipped India to the post in gold consumption. Till now, India was the leader in gold consumption with around 700 tonne imports per year. But, the high prices and a slump in demand for jewellery caused India yielding the numero uno position in gold consumption to China.
And, it is time India take note of this and give a thought to the reason for this craze by China for gold. What is the reason for China to buy much gold in 2009 than the previous years.
The main reason for China to buy gold is that the Dragon has lost faith in dollar and they want to hike their gold reserves. Dollar is no more a favoured option for China to keep its reserves. China has a kitty of over $2 trillion, mostly greenbacks.
China thinks that dollar may well become a dud, given US’s economic troubles. So, China wants to stock up on something the value of which does not change with one country’s policy moves. And, the best option is gold.
According to media reports, since 2003, China has been buying gold excavated and refined locally. It was a perfect strategy. No one in the international market became the wiser and the bill was paid in yuans. Now, China has more than 1,000 tonnes in its official vaults, up 75% in six years.
Its gold reserves are now the fifth-largest among national central banks after the US, Germany, France and Italy.
Beijing also started actively encouraging people to invest up to 5% of their income in gold and silver. The biddable Chinese have diligently followed this advice. Full-year 2009 private demand in mainland China could outstrip India by a fifth.
China is stepping up efforts to extend consumption in rural areas, including the newly-wealthy people who are trying to own top brand gold for social status purposes.
Over the next decade, more Chinese will buy gold, at a time when inflation is almost certain to be high, adding to its appeal. In short, China can permanently alter gold’s global demand-supply equation.
As top producer and consumer, surely China should control gold prices the same way it has changed the game in metals and soft commodities. But it didn’t. That’s because with no real end-use, gold’s price is derived more from the nebulous value the market ascribes it and competing investment opportunities rather than the iron laws of physical demand-supply. China’s impressive physical numbers tend to leave traders cold.
Instead, what really gets them jiving is the sentiment that China signals to the world. China is buying gold because it is nervous about the US dollar, and this fear is contagious. Investors in India and round the world have started accumulating gold too. The subsequent price spike, itself fraught with risk, then becomes almost a self-fulfilling prophecy. So, China’s buying definitely added to the 28% (in rupee terms) spurt in gold prices last year.
China’s real power comes from its hard-headed attitude. Chinese families may have just figured the virtues of gold as a safe haven, while we have passed it down generations to survive war, unemployment, debt, crop failure and marital break-up. But here is the nub: we hate selling gold. For the Chinese, sentiment doesn’t come into it, at least for now. Plus, they are far more market-savvy.
If the timing is right, they may well encash their investment. No fund manager or trader can afford to ignore this chilling fact. China’s growing presence in the physical gold market is awe-inspiring. But China’s pragmatic approach to gold makes it the really big kahuna.