It appears that the Chinese are starting to have a bit of a panic about inflation. What happens to gold prices if that spreads to other large countries ?
A couple of data points
1) ICBC sold 15 tonnes of gold bullion in all of 2010. They sold 7 tonnes in just January of this year.
2) ICBC issued 1 billion yuan worth of gold linked term deposits in 2010. Have already matched that this year.
Here are some articles documenting how China is now going to impacting the gold market :
http://www.reuters.com/article/2011/02/16/us-icbc-gold-idUSTRE71F1MO20110216
ICBC (1398.HK)(601398.SS), the world's largest bank by market value, sold about 7 tonnes of physical gold in January this year, nearly half the 15 tonnes of bullion sold in the whole of 2010, said Zhou Ming, deputy head of the bank's precious metals department on Wednesday.
"We are seeing explosive demand for gold. As Chinese get wealthy, they look to diversify their investments and gold stands out as a good hedge against inflation," Zhou told Reuters.
"There is also frantic demand for non-physical gold investments. We issued 1 billion yuan worth of gold-price-linked term deposits in 2010, but we managed to sell the same amount over just a few days in January this year," Zhou said, adding that such deposits would easily exceed 5 billion yuan ($759 million) this year.
Gold imports into China soared in 2010, turning the country, already the largest bullion miner, into a major overseas buyer for the first time.
The surge, which comes as Chinese investors look for insurance against rising inflation and currency appreciation, puts the country on track to overtake India as the world's top gold consumer and a significant force in global gold prices.
Gold prices jumped 30 percent in 2010 and struck an all-time high of $1430.95. Spot silver surged 83 percent last year and is currently hovering at around $30 per ounce.
Zhou said China's gold demand could grow at a stronger pace this year compared with 2010, as a choppy stock market and moves by Beijing to rein in property speculation and purchases means more investors will pile their cash in bullion investments.
"Unlike the property market, investment in the gold sector is something the government is encouraging," he said.
Beijing has encouraged retail consumption and announced last August measures to promote and regulate the local gold market, including expanding the number of banks allowed to import bullion.
"China has a centuries-long cultural attraction to gold and because we have started at such a low base, I think demand growth will likely stay strong for quite some time," he said.
Zhou said there was also voracious demand for silver, with the bank selling about 13 tonnes of physical silver in January alone, compared with 33 tonnes in the whole of 2010.
The scale of China's gold demand, which has increased on average at a double-digit clip over the past decade, has caught the market by surprise. Data showed China imported 209 tonnes of gold the first 10 months of last year, versus 333 tonnes by India for the whole year.
The bank on Tuesday launched its second physical gold investment product, which sells gold bars to investors, which can be resold for cash through ICBC based on real-time gold prices.
The WGC said ICBC's introduction of this gold investment could lift China's gold retail investment by 10 to 15 percent in 2011 from about 170 tonnes last year.
http://www.ft.com/cms/s/0/9742847e-fe3e-11df-abac-00144feab49a.html#axzz1E7zIKmTR
Gold imports into China have soared this year, turning the country, already the largest bullion miner, into a major overseas buyer for the first time in recent memory.
The surge, which comes as Chinese investors look for insurance against rising inflation and currency appreciation, puts Beijing on track to overtake India as the world’s largest consumer of gold and a significant force in global gold prices.
The size of the imports – more than 209 tonnes of gold during the first 10 months of the year, a fivefold increase from an estimate of 45 tonnes last year – was revealed on Thursday. In the past, China has kept the volume secret.
“Investment is really driving demand for gold,” said Cai Minggang, at the Beijing Precious Metals Exchange. “People don’t have any better investment options. Look at the stock market, or the property market – you could make huge losses there.”
Beijing has encouraged retail consumption, with an announcement in August of measures to promote and regulate the local gold market, including expanding the number of banks allowed to import bullion.
Shen Xiangrong, chairman of the Shanghai Gold Exchange, who disclosed the import numbers, said uncertainties about the Chinese and global economies, and inflationary expectations, had “made gold, as a hedging tool, very popular”.
The rise in Chinese demand could further inflate gold prices. Bullion hit a nominal all-time high of $1,424.10 a troy ounce last month. But adjusted for inflation, prices are far from the 1980 peak of $2,300.
“The trend is undeniable – gold demand in China is rising rapidly,” said Walter de Wet, of Standard Bank in London. China surpassed South Africa three years ago as the world’s largest producer.
The surge in gold imports to China bodes well for some of the world’s biggest hedge fund managers, including David Einhorn of Greenlight Capital and John Paulson of Paulson & Co, who have invested heavily in bullion, and top miners Barrick Gold of Canada, US-based Newmont Mining and AngloGold Ashanti of South Africa.
The market upswing has prompted an increase in gold scams in Hong Kong, according to industry executives. The counterfeits have shocked the Chinese’ territory’s gold community not because of the amounts involved – between 200 and 2,000 ounces – but because of their sophistication.
In one case, executives discovered a coating advertised as pure gold that masked a complex alloy which included rare metals such as osmium, iridium, ruthenium and rhodium.
Chinese total gold demand rose last year to nearly 450 tonnes, up from about 200 tonnes a decade ago, according to the World Gold Council, the lobby group of the mining industry. Analysts anticipate a further leap this year, putting the country whiting striking distance of India’s total gold demand of 612 tonnes in 2009.
http://blogs.wsj.com/marketbeat/2010/12/03/gold-demand-huge-buying-from-china/
Gold’s record rally has been attributed to everything from worries about inflation, the dollar and the emergence of exchange-traded funds. One big factor many may have missed: huge buying from China.
Data cited Thursday by China’s state-run Xinhua news agency showed that China imported 209.7 metric tons of gold in the first 10 months of the year, a fivefold increase compared with the same period last year.
That surpassed purchases made by ETFs and surprised analysts, who until now had no clear insight into the size of China’s buying.
Gold demand in general has soared globally this year, as a result of the sovereign-debt crisis in Europe and the Federal Reserve’s new round of bond buying. Gold prices were pushed up to an all-time high of $1,409.80 a troy ounce on Nov. 9. Thursday, gold settled $1.20 higher, or 0.1%, to $1,388.50, up 27% for the year.
“Everybody in the gold market knew there was a surge in investment demand, but they didn’t know it was China,” said Jeff Christian, managing director at CPM Group.
China’s import growth is a reminder of the country’s huge but nascent purchasing power.
It comes as the government loosens its restrictions on gold purchases by financial institutions and individual investors. In August, the country began allowing more banks to import and export gold, opening up the gold market to the institutions and their clients.
Then this week, the Chinese securities regulator approved the country’s first gold fund designed to invest in overseas-listed gold ETFs, a move analysts interpreted as another bullish sign for gold.
“The big picture is that China is continuing to relax the rules governing the domestic gold market,” said Martin Murenbeeld, chief economist of DundeeWealth Inc., which oversees $69.9 billion in assets. “What we are seeing is the latent demand that has been there all the time and now can be exercised in the market because now the market is freed.”
The World Gold Council estimates that China’s gold demand could double in 10 years as more investors there embrace precious metals.
Until several years ago, China’s gold market was strictly controlled by the central bank, which bought all the gold mined domestically. It then sold the metal to jewelry makers. The country, which is now the largest gold producer, remained largely self-sufficient in gold, with imports at a meager 31 metric tons in 2009, according to GFMS Ltd.
This year, fears of inflation have driven many Chinese investors to include gold in their portfolios as a store of value. At the Shanghai Gold Exchange, trading volume increased 43%, to 5,014.5 tons, in the first 10 months of 2010, exchange Chairman Shen Xiangrong said, according to Xinhua.
At a speech at the China Gold and Precious Metals Summit in Shanghai Thursday, Mr. Shen detailed the size of China’s imports this year, Xinhua said. Those purchases were big enough to absorb all the gold that the International Monetary Fund had shed during that time period, which stood at 148.6 tons. It also dwarfed the SPDR Gold Shares, the world’s largest gold-backed ETF, which added 159.48 tons of gold into its holdings in the same period.
China also is home to a booming gold-mining industry that keeps it as the world’s largest gold producer. Wednesday, China’s Ministry of Industry and Information Technology said the nation’s gold production reached 277.017 metric tons in the January-to-October period, up 8.8% from the same period last year.
China’s 2010 gold production is expected at about 350 metric tons, according to Standard Bank head of commodity strategy Walter de Wet.
“We note that there is likely to be illegal gold exports and imports from and to China,” Mr. de Wet said in a note to clients. “This would distort the actual gold numbers for China. However, the trend is undeniable, gold demand in China is rising rapidly.”
