"There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved."
- Ludwig von Mises

Wednesday, November 10, 2010

China Gold Demand To Likely Surpass India In 3-4 Years

China still has the gold bug.  Here's an article confirming the widely held view that China is accumulating gold in a manner that does not upset the markets.  It is buying from internal production (its own mines), and it has been encouraging its people to buy gold.  I call it the unspoken Chinese "get that gold within our borders and we'll figure it out later" gold policy. 

From Reuters:

Analysis: Deregulation set to lift China gold demand

(Reuters) - Plans to free up China's gold market are likely to boost imports of the precious metal to satisfy investor demand, putting the Middle Kingdom on course to eclipse India as the top global consumer in a few years.

China, the world's largest consumer of base metals and the second biggest user of oil, is on gold bugs' radar screens, with any hint that Beijing may want to boost its gold holdings rippling through international markets, sending bullion higher.

So far China's central bank has shied away from the international market and has instead been building reserves from its domestic mining industry, the largest in the world.

But that may change after the People's Bank of China said in August it would let its banks export and import more gold in a program to drive the development of the country's market in the precious metal.

By opening up the market, the PBOC may be able to draw tonnes of gold into China, which it could then pick up on the domestic market, without disrupting market equilibrium too much.

"The way they will accumulate a massive amount of gold is by opening up imports and making sure there is heck a lot of gold swishing around in the domestic market," said Mark Pervan, a senior commodities analyst at ANZ.

"It's just too big a player in the market. Investors are looking for any signs of China buying gold on the world market. If Beijing said it was buying 100 tonnes, prices would leap, not because of this 100 tonnes, but because of the 300 tonnes the market would expect to follow."

...China's gold consumption this year is forecast between 450 and 600 tonnes, with a consensus of 500 tonnes, analysts surveyed by Reuters said. The WGC estimates demand at 510 tonnes.
Several researchers have urged Beijing to increase its gold reserves to diversify more of its $2.6 trillion in foreign currency reserves, and a more open market would allow the central government to build stocks of gold more quickly, without sending tremors through the international market.

Although no detailed follow-up rules have been announced, analysts expect Beijing to open up the gold market as a prelude to deregulation of bond and foreign exchange markets.
Full article HERE.

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