HONG KONG (AP) — China is poised to overtake India to become the world’s biggest gold market this year as rising incomes fuel demand for the precious metal and a weak rupee diminishes Indian purchases, an industry group said Thursday.
The amount of gold bought in China rose 20 percent in 2011 over the year before to 770 metric tons, the World Gold Council said in its annual report. That put China behind only first-place India, where 933 metric tons were bought.
Worldwide, the amount of gold purchased rose 0.4 percent to 4,0671 metric tons worth $205.5 billion.
The council said it’s “likely that China will emerge” as the world’s largest gold market for the first time in 2012.
Rising incomes in China, which is the world’s No. 2 economy, have resulted in a surge in demand for gold jewelry and other luxury goods. China became the world’s largest market for gold jewelry in the second half of 2011 as demand rose in every quarter, the report said.
Gold bars, coins and other gold-backed products are also popular because of a lack of other investment options in China.
The long-term rise in the price of gold has also made it a popular hedge against inflation — gold hit a record nominal high of $1,891.90 an ounce in August, though prices have fallen since then. Gold futures for April delivery ended trading in New York on Wednesday at $1,728.10 an ounce.
Central banks, many in developing economies, also boosted gold sales as they sought to diversify their growing piles of foreign currency reserves. They bought 439.7 metric tons of gold last year, up from 77 metric tons the year before and the highest amount since 1964, the report said.
The poor performance of China’s stock and property markets — the other two main choices for Chinese with money to invest — is boosting the popularity of gold as an investment, said Albert Cheng, a managing director at the London-based World Gold Council.
The Shanghai Composite Index is down 20 percent over the past year while house prices are starting to fall after authorities put in place curbs to cool an overheated market.
Strong Chinese demand for gold also helped sales leap 33.5 percent last year in Hong Kong, a popular destination for wealthy mainland shoppers because of lower taxes in the semiautonomous Chinese territory.
Demand for gold jewelry in India, meanwhile, fell in the second half of 2011 because of the weakening rupee, which made gold more expensive.
Indians also grappled with high inflation last year that ate away their purchasing power, so they bought smaller amounts of gold, Cheng said.
BEIJING - China should further diversify its foreign-exchange portfolio and make more gold purchases when the metal’s price dips but is still at a relatively high level, a senior central bank official said on Monday.
“The Chinese government should not only be cautious of the imported risk caused by rising global inflation, but also further optimize its foreign-exchange portfolio and purchase gold assets when the gold price shows a favorable fluctuation,” said Zhang Jianhua, director of the research bureau affiliated with the People’s Bank of China (PBOC).
He made the remarks in an article in the Beijing-based Financial News, a newspaper run by the PBOC.
The spot gold price declined 16 percent over the past three months to less than $1,600 an ounce last week. It touched a record of more than $1,900 in early September.
Zhang said bleak economic conditions, increasing international liquidity as countries turned to monetary easing and the resulting high inflation had dampened investors’ confidence. He said that gold had become the only “safe haven” for risk-averse investors. “No asset is safe now. The only choice to hedge risks is to hold hard currency - gold.”
Zhang didn’t specify what proportion of China’s $3.2 trillion foreign reserves should be held in gold.
China is the largest foreign holder of US Treasury securities, having invested about one-third of its foreign reserves in those bonds. About 20 percent has been invested in euro-denominated assets.
As of this month, China ranked sixth worldwide in gold holdings, with about 1,054 tons. The value accounted for about 1.8 percent of the country’s total foreign reserves, according to a report released by the World Gold Council (WGC).
The US topped the list by holding more than 8,133 tons of the metal, 76.6 percent of its foreign reserves by value, while Germany ranked second by holding 3,396 tons, 73.7 percent of its reserves.
In 2011, countries including Russia, Thailand, South Korea, Bolivia, Colombia, Kazakhstan and Venezuela purchased the metal to increase gold holdings of their central banks’ reserves.
China didn’t sell or buy gold from 2010 to 2011, according to WGC statistics.
“The PBOC may have realized that its euro-denominated assets are in greater danger than it expected and started to eye gold,” said Li Jie, director of the foreign-reserves research center at the Central University of Finance and Economics.
“But it’s impractical for China to put its foreign reserves into commodities, including gold, because all these markets are too small for such a big hoard.
“For example, China’s purchasing gold would push up the price of the metal and increase its own cost,” said Li.
Li added that there was no easy way for China to get as much gold as it wished because major economies such as the US hold the majority of gold and market supplies are very limited.
China produced 31.75 tons of gold in October, the Ministry of Industry and Information Technology said on Monday. Gold production gained 5 percent in the first 10 months of this year to 290.752 tons.
Driven by increasing demand from risk-averse investors, the international price of gold repeatedly reached new highs in 2011.
Central banks made their biggest gold purchases for a single year in 2011 since the Bretton Woods system dissolved in 1973 and major currencies began to float against each other without being pegged to gold. China has vowed to further diversify the nation’s foreign-reserve portfolio amid growing global financial uncertainty. In October, it cut holdings of US Treasury securities by $14.2 billion to $1.13 trillion, the lowest level this year.
Media reports have said that the PBOC plans to create a fund worth $300 billion to invest the country’s foreign reserves in the US and European markets. The fund will reportedly seek to invest in real assets and company shares, rather than government securities.
By Wang Xiaotian
It is a new year and we can breathe a sigh of relief or can we? 2011 was a very rough year for the world as a whole. Governments are tightening the nooses on their citizens. People are feeling like their money is not buying them as much as it used to. Wages are stagnant for most of the working class. Many people who were once considered middle class who gave to help the poor are now in the position of asking for assistance.
What is happening to the world as we know it? The European Union is struggling to stay together. The USA is turning into a police state. The Middle East and North Africa is destabilized. Asia is struggling with natural disasters and a weakening China. Central and South America are emerging as commodity power houses. Russia seems to be reawakening. All this and we have more rumors of war. What can we do?
In times of uncertainty Gold has always been the money of choice. Gold offers you many benefits.
- Retaining Purchasing Power when governments print their fiat currency. Gold always retains a value to protect the holder. For Americans Gold has proven to consistently protect against Dollar weakness. Governments will try to hide the devaluation of their currencies.
- Diversification is key, have a portion of your portfolio in a hard asset such as Gold Bullion. I do not recommend all of your assets be tied to the US stock market. So this means if you buy Gold make sure to buy bullion, 100% allocated.
- As a Safe Haven, Gold is the asset that is considered safe. In volatile and uncertain times do you want your money exposed to a volatile stock market?
Alan Greenspan (Former Chairman of the Federal Reserve) once said,
“An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense that gold and economic freedom are inseparable”.
Gold has risen for 11 years straight. Some speculate that Gold is in a bubble similar to the early 1980’s. One thing that I see that is much different today than 30 years ago is the size of the market today. In 1980 the Gold bubble was primarily a Western phenomena. Today we see people from all nations participating. The Chinese have Gold fever, as well as the Indians, Russians, Arabian nations etc. Everyone can sense that it is time to put their money in a hard asset until the storm clouds pass.
How do we store the Gold that we purchase? Most people who start out with Gold ownership buy a few coins and store them at home or in a safety deposit box. The only reservation I have concerning this is the uncertainty of government. In the USA there is already a precedent set that the government can ask its citizens to turn in their Gold. This happened under President Franklin Roosevelt in 1933. Confiscation of the peoples Gold recently happened in South Korea and Thailand during the Asian financial crisis of 1998.
The other option outside of paper assets is to buy physical Gold Bullion and have it stored offshore in a safe secure facility. What are some benefits to offshore storage?
- Asset Protection
One program that can give a person of peace of mind is offered by Swiss Metal Assets. The benefits of partnering with Swiss Metal Assets include.
- Your Gold is stored safely and securely in the Zurcher Freilager in Switzerland.
- 100% insured by AXA Insurance.
- Your Gold will never be leased by bullion banks unlike many ETF’s
- The vaults are audited regularly by Swiss customs.
- Rapid liquidity of your metals
- Individual Retirement Account (IRA) eligible
This spring Swiss Metal Assets is opening another storage facility in Panama. This state of the art facility will be located in the Panama Pacifico Free Zone. This Free Zone is the old Howard Air Force base. This facility will have the benefits of an airfield to bring your holdings securely into the country.
Gold gives a person peace of mind like very few assets can. Let us hope that 2012 will be a safe and prosperous year for all of us.
By: Randy Hilarski - The Rare Metals Guy
MANAGING big-cap growth stock market funds since 1999, Stephen Leeb ,chairman and chief investment officer of Leeb Capital Management, has recently been a big proponent of silver, calling for the Silver Price to rise above $100 an ounce, despite its record price being half that.
Here Stephen Leeb talks to Hard Assets Investor’s managing editor Drew Voros about why he believes demand to Buy Silver, particularly from China, will push the commodity up to three-digit prices.
Hard Assets Investor: You have declared that silver is a “three-digit” commodity. Why?
Stephen Leeb: I think there are two crucial fundamentals. One, silver’s a monetary metal, although not as widely recognized as a monetary metal as gold right now. But it certainly has a history of being a monetary metal. People will price it for that. You have a race to the bottom in terms of all the current reserve currencies, like the Euro and the Dollar. The action in gold is certainly evidence of that. The fact that silver’s price [has been] holding in the upper 30s is pretty good. There’s a lot of downside protection in silver because of its monetary component.
On the industrial side, silver is critical. Silver has properties that cannot be duplicated on many levels. It is the best thermo-conductor of anything that’s found. It conducts heat better than anything else. It conducts electricity better than copper or anything else. And, it’s one of the best reflectors. Is it really surprising then that silver is a critical component on most solar applications? China right now is spending about $1 trillion a year on alternative energies. China controls the solar industry. They have at least 50% market share. They’ve been underbidding, undercutting everybody in the development and acquisition of polysilicon. After which comes silver. In order to build these solar panels, you need silver.
You have a potential, utter squeeze coming on silver, a monetary metal with critical industrial applications. The Silver Price is trading around $39 and hasn’t even come down 10% since the market started sliding. It’s a great hedge in deflation. You’re going to have demand for silver coming from two places, which I don’t think you’re going to be able to satisfy, given that silver production today is rising at a much slower rate than it was in 2010, despite the fact that Silver Prices are higher. That dictates dramatically higher prices for silver.
HAI: Do you think the solar element is something that is being overlooked in terms of the demand?
Leeb: Totally. China will start Buying Silver much more aggressively and start accumulating it. There’s very little doubt in my mind that China will be accumulating massive amounts of silver.
HAI: For silver to achieve three digits in price, would it be a slow, steady march, or something that would rocket up?
Leeb: I don’t think it would be a single event. I wrote a book, The Oil Factor, and in it I made the call for $100 [a barrel] oil. I said “three digit oil”. When the book was published in 2004, oil was around $30 or so, about the same price as silver is now. It took about three years to get to three digits. But there was no event that triggered the big jump in oil prices. There has been no event that has triggered the big jump in Euros, other than the gradual realization that there are no reserve currencies in the world that are worth a darn. The same realization will keep silver in a strong, long-term uptrend. I think people are going to be very surprised, very surprised, when the Silver Price just goes past $50.
HAI: Is $50 the figure that, once it breaks through that, it can take off, or is it further up the line?
Leeb: No, people make too much of these breakout points. If it goes to $50, it’s likely to go to $51 pretty quick. I’m sort of being funny. I don’t think that it’ll tick at $50, and then the next tick will be $80. If it goes to $50 it will likely get a little pop, maybe low $50s or mid-$50s and walk around there for a while and then go up again.
HAI: Do you think that that would happen independent of gold?
Leeb: It will be independent of gold. I think all commodities are going to have to go a lot higher. I just don’t think there are enough commodities out there to build out renewal or alternative energies. I don’t think China realizes it. I mean, you’ve got peak [price] coal, you’ve got peak oil, peak everything. Silver, even without the monetary component, would make it into three digits.
HAI: You seem to have a bullish sense of growth; global growth as well?
Leeb: I wouldn’t say global growth. I’m bullish on Chinese growth. China’s a wicked enemy of ours. They’re monopolizing resources. They’ll continue to do that because I think they’re looking out for their own. It’s hard to have a totally bullish outlook on growth when you’re looking at resource scarcities that are going to affect China as well.
HAI: Do you think that gold and silver are in the same asset class?
Leeb: They’ve never been in exactly the same asset class. There’s no industrial use for gold. It’s become ever-more recognized as a possible reserve currency. Silver does have industrial uses. It’s industrial vs. nonindustrial. They’re totally different classes. But silver overlaps. In a diagram, you would have silver in both sets: the industrial set as well as the monetary set.
HAI: What fundamentals of silver do you worry about? What would change your opinion?
Leeb: A lot of it has to do with China. What would change my opinion? If we found other ways of creating solar energy that did not involve silver, and I don’t see any on the horizon, that certainly would merit reconsideration. If China collapsed, then the calculus surrounding the world totally changes, including silver, but not just silver.
HAI: How should a retail investor approach silver as an investment?
Leeb: I would approach precious metals as an asset class in and of itself. As an asset class, you try and diversify within the class. There are the commodities themselves, which you can buy through an ETF or you can buy through coins. There are lots of ways of participating. There are senior miners. There are junior gold miners, like NovaGold, which happens to be one of my favorites. Not only does it mine gold, it has a lot of copper. There are going to be seniors like Goldcorp., like Barrick.
HAI: What would you suggest for an asset allocation in precious metals?
Leeb: It makes sense to weight it at least on the same level as you would weight stocks. Whatever your highest allocation is, precious metals should be higher than that allocation.
22 August 2011 hardassetsinvestor.com
Gold was marginally higher in most currencies Tuesday and on the verge of making new nominal highs in dollars, euros and pounds.
It is holding near record highs as there is no quick end in sight to economic turmoil in Europe after Greece was told to approve brutal new austerity measures to avoid defaulting on its debt. This would threaten the solvency of many western banks and the European Central Bank’s Fernandez Ordonez (member of the ECBâs governing council) warned Tuesday morning that the Greek crisis could have “transcendent consequences”.
Further evidence of continuing very significant and robust demand from Asia and from China and India in particular was seen in massive Indian gold and silver imports. The figures released overnight showed a huge surge of 222% in May 2011, compared with May 2010.
Cross Currency Rates
Imports of gold and silver were a staggering $8.96 billion in May, a growth of 500% over the previous month and 222% over last year.
Official inflation rates in India have surged to 8.65% and people on the Indian sub continent are concerned about the devaluation of the rupee and the erosion of the purchasing power of their savings.
While the rupee has maintained its value against the beleaguered U.S. dollar it has fallen sharply against gold and silver and against oil and the other food and energy commodities.
Gold has always been seen as a store of value against currency debasement, inflation and hyperinflation in Asia. This is especially the case in India and we appear to be witnessing an acceleration in the recent trend of Indians opting to buy gold and silver bullion in order to protect their savings.
India’s central bank, the Reserve Bank of India, bought 200 tonnes of gold from the IMF in the months preceding an announcement in November 2009. Given its huge dollar reserves it is likely that it is continuing to diversify foreign exchange holdings and further announcements of increased gold reserves are likely in the coming months.
Despite the increase in reserves its gold holdings remain paltry when compared with the U.S. and European gold reserves.
Most creditor nation central banks in the world are now diversifying out of the major currencies, the dollar and the euro, and into gold. These include the People’s Bank of China, the Russian central bank and central banks in Sri Lanka, Bangladesh, Mauritius, Mexico, Iran and Saudi Arabia.
News came Monday that Russia’s central bank again increased its gold holdings to 26.7 million troy ounces last month, from 26.5 million at the end April. The Bank of Rossii said its gold reserves were valued at $41 billion as of June 1, compared with $40.7 billion a month earlier.
It is interesting that the Reserve Bank of India has granted licenses to seven more banks to import gold and silver bullion and this is indicative of the favorable view of gold and silver in India â both amongst the public and at the official level.
Indian banks are thus likely contributing to the massive increase in demand for gold and silver. Chinese banks are also catering to the increased demand of Chinese people for gold bullion for investment and savings purposes.
This is in marked contrast to their western banking counterparts, the vast majority of which, do not offer gold or silver investments at all.
As of the start of 2011, some 30 banks in India have been granted permission to import gold and silver. New additions to the list were Karur Vysya Bank, State Bank of Bikaner and Jaipur, State Bank of Hyderabad, Punjab and Sind Bank, South Indian Bank, State Bank of Mysore and State Bank of Travancore.
Since the start of 2011, India’s benchmark stock index, the Bombay Stock Exchange Sensitive Index, is down by more than 14% while gold in rupee terms is up 9%. The Sensex is essentially flat in the last year and the last 3 years despite soaring inflation.
The increased demand from India and wider Asia is sustainable and one of the fundamental reasons that gold and silver’s bull market remain very much intact.
Importantly, China was expected to surpass India as the world’s largest gold importer this year. After the most recent Indian import figures this is now not certain.
Chinese investors more than doubled their purchases of gold during the first quarter in 2011, compared with the same period last year. China invested $4.1 billion into gold bars and coins during this first quarter of 2011.
China’s investment demand increased to 90.0 metric tonnes (40.7 tonnes in the year prior), compared with India’s 85.6 tonnes.
Gold in Australian Dollars Breaking Out?
In a report Tuesday, the Australian Bureau of Agricultural and Resource Economics and Sciences conservatively estimated that bullion may average $1,500 an ounce this year. The metal has averaged $1,445 so far in 2011.
“Uncertainty about the ability of many developed economies to stimulate economic growth and control growing budget deficits is expected to encourage investment demand for gold as a lower risk, or safe haven, asset,”, the Canberra-based agency said.
Despite some calling the Australian dollar a “safe haven” currency, the Australian dollar has been sold recently and gold appears to be in the early stages of breaking out in terms of Australian dollars.
This is another indication of the global nature of gold’s bull market and the fact that all fiat currencies are now vulnerable to currency debasement and devaluation. Focusing on gold solely in U.S. dollar terms remains simplistic and misleading.
Gold’s consolidation in recent months in all currencies and gradual gains since late January suggest that we may be on the verge of a break out in all currencies and a powerful move upward in the next leg of the precious metal bull markets.