Who’s smartest on gold – Chinese housewives or George Soros?

The huge surge of purchasing by Chinese – particularly Chinese women – is reported to have amounted to more than 10% of annual global mined gold output in just 2 weeks of frenzied buying.

On the face of things the answer to the question posed by the title should be obvious – but….  What prompted the question is a whole rash of Internet headlines regarding a mad rush to purchase gold by the Chinese over the May Day holiday.  By all accounts gold bullion and jewellery dealers were overwhelmed by the numbers of people flooding in to buy gold – particularly in Hong Kong where premiums were believed to be not as high as on the mainland.

Some of the headlines seen were as follows: China Gold Mania – Coins, Bars and Jewelry Sales Surge 108% on Goldseek; Chinese housewives buy 300 tons of gold on Marketwatch; HONG KONG gold retailers overwhelmed by mainland shoppers on China Daily; CHINA – Gold Helps China May Day Sales Rise 20% on Forbes; CHINA – Housewives’ gold rush keeps price from falling on People’s Daily online etc. 

See also: Many of these were illustrated with pictures of throngs of purchasers – mostly women (the Chinese housewives).  And while Soros, who has liquidating most, if not all, of his SPDR Gold Trust holding (in retrospect a pretty smart move), could perhaps be missing out on something here, given the flood of Chinese (and other) demand unless of course he has quietly been rebuilding his gold holdings in some other form – bullion maybe or gold stocks.

Indeed perhaps on Wednesday when the major traders remained closed for the May Day holiday it looks like the Chinese housewives, plus perhaps their Indian, other Asian and Middle Eastern counterparts were very much supporting the gold price and the big question now is whether the buying surge will continue – in which case those short on physical gold could find themselves in serious difficulties.

But, the China factor makes the whole buying surge particularly interesting.  For many years holding gold was banned in China, but more recently it was legalised and then, by all accounts the Chinese government started to encourage its citizens to buy both gold and silver. 

See also: China pushes silver and gold investment to the masses

With a managed economy like China’s that could have serious implications for the market and for those in the West who appear to be trying to exert some control over pricing.  There may well come a stage where China may move to protect its citizens’ interests if it is felt that the Western bullion banks and central banks and governments are colluding to control the gold price to the detriment of the Chinese people – and China certainly has the financial clout to do this.  An acknowledged purchase of say 1,000 tonnes of gold or more by the Reserve Bank of China for its official gold holdings would hardly make a dent in its total currency reserves yet could have a huge immediate effect on the gold price.

Indeed there are many that believe that the Chinese government may have already bought at least this amount of gold for its official reserves, but is not yet reporting it.  Indeed it denies this – but the cynics might say never believe anything until it is ‘officially denied’.  The reverse usually turns out to be true.

If the ‘Chinese housewives’ have indeed bought 300 tonnes of gold, as the MarketWatch article avers quoting a ‘Voice of China radio programme,  that represents more than 10% of annual global mined gold production purchased in a 2 week period alone.  That figure is staggering.

Even if the rate of purchase slows it still suggests that over the full year several years of global mine production could be taken up by the Chinese alone.  And then there are the Indians, the Turks, residents of the Middle Eastern countries – all these have been buying in a reported buying frenzy  While the SPDR Gold Trust may be bleeding gold, it’s at nowhere near the rate it is being absorbed in Asia and the Middle East.

Now maybe the rush has diminished as the May Day holiday has ended.  Gold price premiums in China are said to be falling now, but by Western standards they still remain high.  Gold bullion is, apparently hard to find and it is fabricated gold which is being bought mostly (fabrication premiums are low in the East).  The price recovery will have had something to do with this – gold is no longer quite as cheap in the eyes of the purchaser, although still much lower than only a few weeks ago.

But for the gold believer the migration of gold from West to East is a concern.  It is believed that China wants the yuan to have at least a role in the next global reserve currency in a recognition of the trade advantages that have accrued to the U.S. over the years through the dollar being the reserve currency for much of the past century.  It is thought that it feels that domination of the gold market may be the key here – and the way things are going at the moment China could well be on the way to achieving this.

But back to the ‘Chinese housewives’.  They have been buying gold because they see it as cheap at current prices and feel that the only way for the precious metal is up from this point.  Indeed they may well be putting a floor under the price with massive purchases coming in on any future dips like the one we saw only a couple of weeks ago.


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