China’s Hoarding All The Gold!

Posted by Brittany Stepniak – Tuesday, November 8th, 2011
 

China’s at it again! Sounds like they went on another gold shopping spree a little over a month ago as September monthly gold purchases for 2011 were nearly 50% of China’s entire gold purchases made in all of 2010.

September was a rather volatile month for gold with record highs and some shocking lows.

Gold imports from Hong Kong soared to record heights in September followed by a steep price dip. Just after spiking to a high of $1,920.30 a troy ounce this past September, gold then plummeted to a three-month low (also in September).

Savvy investors swiped up as much gold as they could, taking advantage of the short-lived price-dip. But experts and analysts don’t anticipate a slowdown in the buying trends from China’s investors anytime soon…

Instead, you should expect China to continue snagging gold until the end of this year as they are likely to get quite a bit of gold prior to the Chinese New Year, which begins China’s stereotypically big gold-buying period. These bargain hunters want to get a good deal before the real flock of masses begins buying, thus, sending gold prices up even higher.

Studying these trends sheds light on just how invested China is in gold. Currently, China ranks as the world’s second largest gold consumer, and demand is going nowhere but up – and it’s surging fast. And while Beijing does not release public records of its exact amount of gold imports, analysts can observe Hong Kong’s numbers and infer to get a good direction proxy for the entire country.

As of the first quarter of 2011, China even surpassed India as the world’s top gold market:

China vs. India
*Image courtesy of uncommonwisdomdaily.com.

Cameron Alexander, senior analysts at GFMS consultancy estimates that China will import a total of 350 metric tons by this year’s end.

Investors in China buy gold for the same reason any educated investor does: to hedge against inflation, for the aesthetic value of the jewelry, and to buff up his or her own portfolio. Alexander also says that China’s jewelry demand has grown more than 13 percent this year, which is a “positive” number when compared to other countries across the globe.

Here’s a summary of how gold prices have changed from 2010 to 2011:

Data from the Hong Kong government showed that China imported a record 56.9 metric tons in September, a sixfold increase from 2010. Monthly gold imports for most of 2010 and this year run at about 10 metric tons, but buying jumped in July, August and September. In the three-month period, China imported from Hong Kong about 140 metric tons, more than the roughly 120 metric tons for the whole 2010.

The last two months of this year are likely to see China’s gold imports surge further ahead of Chinese New Year, supporting gold prices, according to Ms Kong. “We’ve noted a quite strong seasonality in gold prices, typically prices go up in the months before the Chinese New Year.”

With limited investment opportunities in China, gold is right on track with a strong pace.

The other options – the property market, the stock market, and a few commodities – aren’t doing as well as anticipated a few months ago. The housing industry is teetering on the edge of disaster and the stock markets are reacting poorly. Chinese bank deposits even offer “negative real interest rates.” At the same time, Beijing has repressed property sales. While those factors remain unchanged, investment demand for gold will hold strong in its position as a safe hedge against inflation.

*Indented excerpts from CNBC.com.

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