"Unbelievable" gold demand" stuns China traders
The volume of Chinese citizens' purchasing of gold running up to the start of the Chinese New Year has completely stunned traders leading to big price premiums in Shanghai.
Posted: Thursday , 03 Feb 2011
Consider the following paragraph from London's highly respected Financial Times - a publication not usually prone to hyperbole: Precious metals traders in London and Hong Kong said on Wednesday they were stunned by the strength of Chinese buying in the past month. "The demand is unbelievable. The size of the orders is enormous," said one senior banker, who estimated that China had imported about 200 tonnes in three months.
Now China has already reported a five-fold increase in gold imports over the first 10 months of 2010 and if the estimate quoted above is correct the country may well be seen to have imported upwards of 320 tonnes in the full year which brings the total to within a hairsbreadth of Indian imports - and India has for many years been the world's largest importer of gold by a considerable margin. If Chinese gold purchasing momentum continues at anywhere near close to current levels it will soar past India as the world's largest importer of the yellow metal this year.
The FT quotes UBS gold strategist Edel Tully as commenting that not only is China on the fast track to replace India as the largest physical consumer of gold but that now the Chinese New Year holiday, which starts tomorrow, has already become significantly more important than India's Diwali Festival in gold buying volume terms.
What is perhaps being ignored by many investors who have been liquidating gold holdings in the U.S. in particular where there is a growing, but perhaps unwise, perception that the stock market is on a roll again, is the burgeoning, and seemingly accelerating, strength in Asian demand. As fast as investors are selling their gold ETFs in the U.S., the Chinese and other Asian nations are snapping up the physical gold which thus becomes available again.
Indeed in some parts of Asia, gold has been selling at a strong premium over and above the London price - as much as a $20 an ounce premium is being reported as applying recently in Shanghai, although now the Chinese New Year holiday itself gets under way the demand strength is expected to slip a little. Nevertheless Chinese observers expect buying to surge again once the holiday is over.
With China having been the world's largest producer of gold for the past several years now, with output rising each year, if we add this to the perceived import levels China will have consumed close on 650 tonnes of gold in 2010 - around 25% of estimated global mined production on its own - a remarkable statistic. China, India and other southeast Asian countries together will thus be absorbing around half of global newly mined gold output and for the moment this demand is not just rising, but rising fast, with the Chinese, Indian and several other Asian nations' growth rates rising at close to 10% per annum or more. Those analysts out there who continually harp on about gold's fundamentals not supporting current price levels, let alone further rises, seem to have totally missed this point