Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20
Gold Mining Stocks Fundamentals - 18th May 20
Why the Largest Cyberattack in History Will Happen Within Six Months - 18th May 20
New AMD Ryzen 4900x and 4950x Zen3 4th Gen Processors Clock Speed and Cores Specs - 18th May 20
Learn How to Play the Violin, Kids Activities and Learning During Lockdown - 18th May 20
The Great Economy Reopening Gamble - 17th May 20
Powell Sends a Message With Love for Gold - 17th May 20
An Economic Renaissance Emerges – Stock Market Look Out Below - 17th May 20
Learn more about the UK Casino Self-exclusion - 17th May 20
Will Stocks Lead the Way Lower for Gold Miners? - 15th May 20
Are Small-Cap Stocks (Russell 2k) Headed For A Double Dip? - 15th May 20
Coronavirus Will Wipe Out These Three Industries for Good - 15th May 20
Gold and Silver: As We Go from Deflation to Hyperinflation - 15th May 20
Silver's Massive Undervaluation Relative to Gold Makes It Irresistible - 14th May 20
Bitcoin Halving Passes with no Fanfare, but Smart Money is Accumulating - 14th May 20
Will Job Market from Hell Support Gold? - 14th May 20
The Tragedy Of Missed Covid-19 Opportunities - 14th May 20
Worst Jobs Report In US Economic History - And The Stock Market Continues To Rally - 14th May 20
NASDAQ Sets Up A Massive Head and Shoulders Pattern - 14th May 20
Perceiving Coronavirus as a Disruptive Technology - 13th May 20
Why Financial Trouble Brews on the "Home" Front - 13th May 20
Stock Market ‘Sentiment Event’ Rally Grinds On - 13th May 20
The Fed Now Owns All Markets - 13th May 20
Fruit Trees Gardening to Beat Coronavirus Blues - , Apple, Cherry, Kiwi, Pears, Plums, Grapes, Bananas May 2020 - 13th May 20
Gold Investors Shouldn’t Be Losing Focus - 12th May 20
S&P 500 Bulls Again At Resistance – Now What - 12th May 20
US Fourth Turning Accelerating Towards Debt Climax - 12th May 20
Gold in the year of the Coronavirus Pandemic - 12th May 20
Hi Ho Silver : Away! - 11th May 20
The Great Stock Market Disconnect - 11th May 20
The Big Move In Silver May Be Right Now - 11th May 20
Finding Winners in the Wreckage of the Coronavirus Economic Downturn - 11th May 20
Brave New Corona World – A heated Debate between Steven Pinker and Aldous Huxley - 11th May 20
Coronavirus Catastrophe Stock Market Implications - 10th May 20
US Stock Prices are Ignoring the Economic Meltdown, Wait for it… - 10th May 20
Forecasting Crude Oil: This Method Has Been the Undefeated Champion Since 1998 - 10th May 20
Coronapocalypse and Gold - How High Is Too High for the Yellow Metal? - 10th May 20
The Illusion of Owning Gold - 10th May 20 - Nick_Barisheff
The Financial Crisis Will Continue To Lurk Even If the Lockdown Gets Eased - 10th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

China Gold Panic 2012

Commodities / Gold and Silver 2012 Jan 12, 2012 - 04:28 AM GMT

By: Adrian_Ash

Commodities

Best Financial Markets Analysis ArticleChina's latest gold figures look unrelentingly bullish. Too bullish perhaps...

SO "GROWTH has [now] replaced inflation as Beijing's top policy concern," says Qu Hongbin, Asian economics expert at HSBC in Hong Kong, forecasting three cuts to China's banking reserve requirements by July.


"There is developing in Beijing, I think, almost a panic about global economic prospects and the impact of the European crisis on China," agrees Michael Pettis, finance professor at Peking University. He goes one further and forecasts debate – if not the fact – of a currency devaluation in 2012.

Yes, you read that right. In a US election year, Beijing's policy wonks are arguing over cutting the Yuan's foreign exchange value, not raising it.

China's stellar growth since joining the World Trade Organization a decade ago has of course been driven by exporting cheap goods to the rest of the world. And to gee things along, the People's Bank of course keeps the Yuan (aka Renmimbi) closely pegged to the Dollar – ensuring that devaluation by the US Fed can't price Chinese goods out of the market.

"Within China," Pettis now believes, "many are going to argue that the rapid decline in the trade surplus, coupled with unmistakable evidence of flight capital, means that the PBoC should devalue the RMB."

Flight capital? The tide of cash in Renminbi accounts – after clamoring to get in ahead of the currency's widely assumed and hotly politicized rise – just recorded its first back-to-back months of outflows since 2000. Analysts guess it's because the dead-cert of an upwards revaluation is now off the table. Beijing is only encouraging that view.

"Exports are set to slow [in 2012]," said Shen Danyang, a spokesman for the Ministry of Commerce, in mid-December. "We will further accelerate reforms to...make overall trade remain a positive contribution to the economy."

Such reform cannot mean a rise in the Yuan. Not if overall trade is to continue adding to GDP. Which only confuses the picture for China's gold investment and jewelry demand, now the second-largest after India, perennial sink of the world for physical gold.

Wednesday brought news that gold imports to China through Hong Kong set a fresh monthly record in November of more than 100 tonnes.

That's quite a chunk however you weigh it. China's full-year 2010 imports are estimated to have been some 245 tonnes. Domestic gold mining production (now the biggest in the world, and trapped by a ban on gold exports) totaled some 340 tonnes. Already last year, record monthly gold imports from Hong Kong in October had led one analyst, Tom Kendall of Credit Suisse, to forecast total 2011 imports of perhaps 490 tonnes. Double the 2010 total by weight, that would represent a 150% rise in Chinese gold imports by Yuan value, and come on top of the 10% rise in domestic gold mining output to 375 tonnes forecast in August by the Ministry of Industry and Information Technology.

Ever-more Chinese wealth, in short, is going to gold, and coupled with households' fear of inflation, this new debate over actively devaluing the currency means gold investment demand is only likely to rise again. That would depress China's trade surplus, despite its world-beating mine output. Which given how panicked Beijing is about growth, might perhaps put its friendly policy towards gold at risk.

China began de-regulating gold prices and trading in 2002. On best estimates, annual demand by weight trebled over the following decade, even as Renminbi prices did the same. Because allowing private sales of gold (and silver) to boom has enabled China to diversify its national savings (this is still a Communist state, remember) not only out of the Dollar, but also outside equities and over-priced real estate. So as you can see on BullionVault's chart above, the net effect outpaced even the surge in household savings – itself a function of China's galloping GDP growth – to take the proportion of new Chinese wealth stored in gold from a peak of 0.9% in 2004 to perhaps 2.5% in 2011.

No, Chinese households don't love gold quite as much as India gold buyers just yet. India's love of gold saw its 2010 demand equal some 2.6% of GDP – a huge drag on the country's trade balance, since it has no domestic mine output, unlike world #1 China. When global gold prices dropped 20% from their all-time highs in late 2011, the collapse of the Indian Rupee meant the world's heaviest buyers couldn't step up, not even amid the traditionally strong Diwali and wedding-season periods.

No one expects the Renminbi to sink like the Rupee, however. Unwinding China's newly-enabled love of physical gold would be equally disastrous, politically, as well. But is it mere coincidence that, just ahead of the traditionally strong gold buying season of Lunar New Year, Bejing moved to shut down all gold trading exchanges other than the officially-recognized Shanghai Gold Exchange and Shangai Futures Exchange?

A neatly controlled and officially approved gold rush has been very welcome to date. Any hint of panic buying, in contrast, might perhaps remind Beijing just a little too much of what's been happening in the neighboring, gold-heavy and equally Communist state of Vietnam.

By Adrian Ash
BullionVault.com

Gold price chart, no delay   |   Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2012

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.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules