We are indebted again to Paul Mylchreest’s  Thunder Road Report  for news that will bring big smiles to gold and silver investors everywhere.  Apparently China is pushing the idea of buying gold and silver for investment purposes to the general population in the way that Western television sells soap powder.  If 1.3 billion Chinese citizens start buying gold and silver, even in tiny quantities, imagine what that will do to the market!

The report notes that China’s Central Television, the main state-owned television company, has run a news programme letting the public know how easy it is to buy precious metals as an investment.  On silver investment the announcer is quoted as saying ” China has introduced its first ever investment opportunity for silver bullion. The bars are available in 500g, 1kg, 2kg and 5kg with a purity of 99.9%. Figures show that gold was fifty times more expensive than silver in 2007, but now that figure has reached over seventy times. Analysts say that silver has been undervalued in recent years. They add that the metal is the right investment for individual investors and could be a good way to cash in.”

What appears to have happened in China is a total relaxation of strictures on holding precious metals by the individual with the government pushing gold and silver as an investment option, seemingly at every opportunity.  This is a far cry from the situation only a few years ago where the distribution of gold and silver was strictly controlled.  Now, the Thunder Road Report notes that every bank will sell gold and silver bullion bars in four different sizes to individuals and gold related investments are said to be soaring in popularity.

Around a year ago, Leyshon Resources managing director, Paul Atherley, in an investor presentation in London – and no doubt delivered elsewhere in the world too – commented that some employees at the company’s gold mining project in northern China would, on pay day, go to the local bank and buy a small gold bar as an investment and wealth protector.  To an extent we put this down at the time to mining company hype – but this seems to be exactly the same phenomenon noted by Thunder Road.  The Chinese are being converted from being the lowest per capita gold consumers in the world to a nation of small precious metals investors.  Now, by next year, Chinese consumption of gold is likely to exceed that of India, which has been for years the world’s biggest gold market.  And one suspects that the potential for gold purchasing by individuals is only in its earliest stages.  As more and more Chinese move into the cities and individual wealth grows, this trend is only likely to accelerate.

Paul ends the piece on Chinese gold and silver potential with the following quote from Christine Verone, the first (and only) foreigner in the country to become a certified “expert” on the Chinese gold markets, a designation awarded exclusively by the Shanghai Gold Exchange…and also the first foreigner in history to ever be licensed in any professional capacity by a Chinese commodity exchange.

“Simply put, the Chinese government is trying to trigger a national gold craze…and it’s working. The Chinese public now has gold trading platforms on steroids…. …Also, for the first time in history, Chinese investors can even trade gold abroad (in London) with the swipe of a ‘Lucky Gold’ card. I can’t even get Bank of America to open a foreign currency account.”

Certainly if China is indeed pushing the public to buy gold then there may well be a hidden agenda here.  It’s unlikely they are doing it and will suddenly pull the rug out from under millions of investors.  A cynic (or a raging gold bull) would suggest that this will precede a move to switch a good proportion of the country’s reserves into gold which would have a huge effect on the global gold price and could prove disastrous for the dollar.  Maybe it’s not in China’s interests to drive the dollar down too much until it has managed to divest itself of the huge dollar overhang (see the article on Chinese Sovereign Wealth Funds we published yesterday – Chinese sovereign wealth fund dumping dollars for strategic investments like gold  ).  The country may well already be, of course, surreptitiously building its gold reserves without reporting the build-up. 

If the Chinese are indeed beginning to buy gold and silver as the quoted report suggests then this has to be a strong signal that prices are going to rise, and perhaps rise dramatically, in the relatively near future.  We await comment from other China watchers for confirmation of the gold and silver buying spree, but with global gold production at best flat and probably in decline, even a small increase in Chinese buying could have a substantial impact on gold and silver prices.