24
Jun
2011

China Gold Association: Chinese Gold Sales to Surge Two Fold and Gold May ‘Rocket’ if Debt Crisis Spreads

Gold is lower again today after yesterday’s 2% fall in U.S. dollar terms. Gold’s fall in euros yesterday was mild due to euro weakness. Gold is marginally higher in euros today as the euro remains weak on continuing concerns about the Greek and Eurozone debt crisis. 

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Cross Currency Rates

Irish 10 year government bond yields briefly rose over 12% today (see chart) – new euro era highs on concerns about weak economic growth in Ireland, contagion concerns and concerns as to whether European leaders will manage to save Greece, Portugal, Ireland and other periphery Euro zone countries from bankruptcy.

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Ireland Government Bonds 10 Year Note Generic Bid Yield

Further confirmation of very robust demand from Asia and China in particular came from the China Daily overnight (see news).

Zhang Bingnan, secretary-general of the China Gold Association, said that the amount of gold individual buyers purchase as an investment is expected to surge two-fold annually.

Zhang said that the government’s gold reserves are "far from enough", and should be increased to fend off global financial risks.

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Industry expert Zhang said that, gold’s luster is continuing to attract rising domestic demand. China will continue to "outperform" other countries in private consumption of the precious metal. He estimated sales growth would remain above 20% in the next two years.

Since the international financial crisis China has led growth in gold sales worldwide. According to the China Gold Association, domestic gold sales grew 21.26% to 571.51 tons last year from 2009. This looks likely to continue in the coming years as the "average holding of gold by individuals is still too small and the nation’s rapid economic growth will further stimulate consumption and investment", Zhang said.

Since China deregulated its gold market in 2008 gold sales as a means of investment have surged, with an annual growth of 100% from 2007 to 2010, compared with 30 percent for the global investment market during that period. Sales can be divided into three categories: ornaments, such as necklaces, investment in gold coins and bars and industrial demand.

"Demand for gold, mostly driven by investment, will grow at least 20 percent this year," he said. "Enthusiasm for gold as an investment will get stronger, and domestic sales in this category will keep doubling in the next two years," Zhang said.

The unrealised important fact that the people of China were banned from owning gold bullion from 1950 (by Chairman Mao) to 2003, means that the per capita consumption of over 1.3 billion people is rising from a tiny base.

Many market participants and non gold and silver experts tend to focus on the daily fluctuations and “noise” of the market and not see the “big picture” major change in the fundamental supply and demand situation in the gold and silver bullion markets – particularly due to investment and central bank demand from China and the rest of an increasingly wealthy Asia.

It is worth noting that the People’s Bank of China’s gold reserves are very small when compared to those of the U.S. and indebted European nations. They are miniscule when compared with China’s massive foreign exchange reserves of $3.1 trillion.

The People’s Bank of China is almost certainly continuing to quietly accumulate gold bullion reserves. As was the case previously, they will not announce their gold bullion purchases to the market in order to ensure they accumulate sizeable reserves at more competitive prices. They also do not wish to create a run on the dollar – thereby devaluing their sizeable reserves.

Barclays Capital: Gold Prices are Supported by Central Bank Purchases
Barclays Capital said in an e- mailed report that gold “offers the most supported gains in the near term.”

Bullion purchases by central banks this year are “adding another layer of support to prices,” the bank said.

“We have highlighted previously that despite the amount of gold that had been purchased by the official sector; the swing from sellers to buyers was a significant change given it reignited gold’s relevance as a monetary asset,” Barclays Capital said.

Gold

Gold is trading at $1,509.45/oz, €1,063.29/oz and £943.94oz.

Silver

Silver is trading at $34.87/oz, €24.56/oz and £21.81/oz.

Platinum Group Metals

Platinum is trading at $1,680.50oz, palladium at 733/oz and rhodium at $2,025/oz.

News

(China Daily)
Gold rush as sales surge predicted

(Bloomberg)
Gold May Advance on Europe Debt Woes, Fed Policy, Survey Shows

(Commodity Online)
Central-Bank activity means less volatility in gold than silver so far this year

Commentary

(Financial Times)
Greece’s euro exit can now only be a matter of time

(Forbes)
Gold Convertibility To Save The Euro

(King World News)
Embry – Western Central Banks Don’t Have 30,000 Tons of Gold

(King World News)
Sinclair, Hathaway – Hell Could Break Loose, Confidence Cracks

(Business Insider) 
DEBT CEILING: Moody’s Warns Of Downgrade, UBS Warns Of Armageddon, And There’s No Sign Of A Deal  

Mark OByrne