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Friday, May 20, 2011

impact gold price on China sets new standards in gold

impact gold price on China sets new standards in gold : For gold bugs who are betting that the price of the yellow metal can keep on climbing, here is a story that should keep them smiling. As Jack Farchy reports in Friday’s FT, China has overtaken India to become the largest market for gold bars and coins during the first quarter of this year.

For the three months to end of March, Chinese investors bought 93.5 tonnes of gold in the form of coins, bars and medallions, according to data released by the World Gold Council this week. This is a whopping 55 per cent increase from the previous quarter and more than double the level a year earlier.

The reason? In a word, inflation.

Although the pace has moderated somewhat in the wake of Beijing’s monetary tightening efforts, inflation in China, at 5.3 per cent, remains well above the government’s 4 per cent annual target. In response, Chinese investors (much like their Indian counterparts) are increasingly turning to gold to protect savings against sharply rising prices.

As the World Gold Council itself noted:

Near-term inflationary expectations and rising income levels are likely to support the investment case for gold as an asset class, especially given that Chinese consumers are high savers and are looking to gold to protect their wealth. The longer term story for Chinese gold demand is also compelling, given the increasing prosperity in the world’s most populous country and we believe that gold demand in China will continue to expand.

As Farchy noted in his article, demand has also been helped by the deregulation of the country’s gold market, which has led to an increase in the number of banks importing gold and the number of specialist shops that sell it.

Whatever the reasons, the result of this surge in Chinese buying is that it has helped supported gold prices, even as some investors in the west – like George Soro’s hedge fund – have sharply reduced their exposure to the precious metal.

“You’re seeing eastern demand picking up any of the gold coming out of the hands of western investors,” Marcus Grubb, managing director for investment at the World Gold Council, told Farchy.

Philip Klapwijk, executive chairman of GFMS, the consultancy that produces the statistics on gold supply and demand told Farchy that the willingness of Chinese and Indian consumers to buy when investors in the west sell could help ensure gold prices stay around $1,450 a troy ounce and even underpin a rally to more than $1,600.

But while China might have beat India to the top spot this quarter as buyers of gold bars and coins, India remains the top dog when it comes to the consumption of gold jewellery.

But China, the second largest gold consuming market after India, is catching up fast as the chart below shows.


While India saw total gold consumption rise from 263.4 tonnes in Q1 of 2010 to 291.8 tonnes in Q1 of 2011 ( a near 11 per cent increase), China’s total gold consumption rose by nearly 50 per cent from 166.8 tonnes to 245.5 tonnes during this period. This is in spite of a 25 per cent spike in local prices for the metal. ( source blogs.ft.com..) For the latest updates PRESS CTR + D or visit Stock Market news Today

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