By February 20, 2012 0 Comments Read More →

China’s “Mystery” Gold Buyer

by Adrian Ash
BullionVault

Was the People’s Bank of China really buying gold at the rate of 1 ounce in every 8 sold worldwide last quarter…?

SO THOSE MILITANT crazies known to the mainstream media as “gold bugs” – and to the FBI as subversivesgot the headline they’ve been longing for, apparently, last week.

 

“China central bank in gold-buying push,” declared the Financial Times. “It does appear the People’s Bank of China has been a significant buyer,” agreed a <Reuters columnist.

At last, rapture is upon us see in its trade balance. The only current-account deficit in the region as Morgan Stanley notes, this gold-heavy outflow of cash also weighed on the Rupee's exchange rate in 2011, down 15% versus the Dollar as the currency markets tried to force an adjustment. Because even then, and with Rupee gold prices pushed to fresh record highs despite a 20% drop for US investors after September's top, India's full-year 2011 gold demand still rose from 2010 in Dollar terms, setting a fresh record of $46 billion on the World Gold Council's data, and equal to more than three-quarters of the country's current account deficit. "[We hope to] discourage imports so that the Rupee steadies against the Dollar," admitted a senior, unnamed official quoted by India Today after New Delhi raised import duties and handed a tax advantage to the domestic recycling lobby in January. Beijing's policy wonks are being equally coy about trying to dampen gold bullion imports just ever so slightly. But China's feint should remind precious-metals bulls that Asia's massive demand growth can pose a risk to itself. First, high prices could dissuade new buyers, as shown all too clearly by Western jewelry demand since 2005. A slow-down in GDP growth, worsened by a shrinking trade surplus, would make that risk worse. But for Asia's ravenous gold buying, state interference is perhaps the present threat, especially in a market averaging 36% compound growth by value each year since China began deregulating gold a decade ago. China's gold buyers have needed no help from over-excitable headlines. But they have needed Beijing's blessing to date. Adrian Ash Adrian Ash is head of research at BullionVault – the secure, low-cost gold and silver market for private investors online, where you can buy physical gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees. (c) BullionVault 2012 9 Reposted with Permission by CoinWeek Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

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