China’s insatiable desire for gold is continuing, both on a government level and among individual citizens.
China’s national news agency reported Sunday that China's gold output in 2010 was 340.88 tons, yet the country still had to import 209 tons in the first nine months of the year to meet its own internal demand.
China has been on a gold production binge and ramping up its mining activity to try and meet its domestic appetite. It recently surpassed South Africa and Australia as the world's largest producer of gold, mining almost 13% of the world's annual supply. Over the weekend, reports circulated that China is offering to lend $3 billion to Zimbabwe for money generated from local diamond and platinum mines.
Estimates of how much and when China purchases gold are hard to pin down, since the country tends to amass gold quietly to avoid moving the price. ”China’s central bank is possibly ready to raise its gold reserves,” says Gregory Marshall, author of Good as Gold. “Gold and silver prices may be volatile this year, but the bull market is still in place.”
Chinese citizens are also increasingly looking to gold as a place to store their wealth, and inflation is a big part of the reason. Private Chinese gold demand has risen 26% annually by volume in the last decade.
The country has been on a fast growth track and government authorities have tackled rising inflation by raising interest rates twice already in the past few months. And they could well hike them again in 2011. Chinese inflation data for November 2010 showed prices up 5.1% from the previous year, the sharpest increase since July 2008.
Combined, rising inflation and low Chinese interest rates often turn bank deposit returns into the red in real terms. Chinese households keep about $2 trillion in such accounts, with few other options to store their cash. Add to that falling real estate investments and a slump in the stock market – both due to government intervention – and the average Chinese citizen has few other options.
And between the Chinese government opening its gold market and the Fed’s inflation quest, this trend could well continue.
As Walter de Wet of Standard Bank in London said, “The trend is undeniable – gold demand in China is rising rapidly.”
Scott Carter is Chief Executive Officer of Goldline International, Inc. and host of The American Advisor talk radio show.
(Sources: “Gold and Silver Prices Struggle Higher,” TheStreet.com, February 7, 2011; “Peru poised to become 5th largest gold producer,” UPI, May 21, 2010)