Best of the Week
Most Popular
1.Putin’s World: Why Russia’s Showdown with the West Will Worsen - John_Mauldin
2. Stocks Bull Market Grinds Bears into Dust, Is Santa Rally Sustainable? - Nadeem_Walayat
3. Gold and Silver 2015 Trend Forecasts, Prices to Go BOOM - Austin_Galt
4.Gold Price Golden Bottom? - Toby_Connor
5.Gold Price and Miners Soar on Huge Volume - P_Radomski_CFA
6.Stock Market and the Jaws of Life or Death? - Rambus_Chartology
7.Gold Price 2015 - EWI
8.Manipulated Stock Market Short Squeezes to Another All Time High - The China Syndrome - Nadeem_Walayat
9.Gold, Silver, Crude and S&P Ending Wedge Patterns - DeviantInvestor
10.Is the Gold And Silver Golden Rule Broken? - Michael_Noonan
Last 5 days
The Price Of Oil Exposes The True State Of The Economy - 27th Nov 14
Brazilian Bovespa Stock Market Technical Analysis - 27th Nov 14
Gold Price Would Soar on Possible Swiss Yes Vote - 27th Nov 14
Crude Oil Asset Bubble Trouble - 27th Nov 14
Thanksgiving and Puritan Geopolitics in the Americas - 27th Nov 14
The Dow Jones Stocks Index - Beautiful Tree in the Desert - 27th Nov 14
The Digital World, The Opiate of The People - 27th Nov 14
Harry Dent's Simple Strategy for Surviving Withdrawals from Markets on Crack - 27th Nov 14
Socialist France Just Cannot Compete Against Google Freedom - 27th Nov 14
A Short Tale About the Grand Manipulation of Crude Oil Prices - 26th Nov 14
China Secret Gold Buying ... How Could It Happen? - 26th Nov 14
Gold Price Spikes to $1,467.50/oz on Computer Glitch? - 26th Nov 14
Gold - So Bad It's Good: Surviving 2014 - 26th Nov 14
TrueShopping.co.uk Real Customer Experience Review - Online Shopping Lessons - 26th Nov 14
Is There A New Global Consensus About Cheating Investors To Reboot Employment? - 26th Nov 14
EUR/USD – Currency Bulls Don’t Give Up - 26th Nov 14
Swiss Gold Referendum A Golden Opportunity for Switzerland - 25th Nov 14
Silver: What COT Analysis Tells Us - 25th Nov 14
Stock Market Big, Bold and Ugly - 25th Nov 14
U.S. Dollar Near Top? Gold and Silver Trading, Platinum Breakout Invalidation - 25th Nov 14
Buy Fear - Easily Pick Up Profits on Stock Market Dips - 25th Nov 14
The Islamic State Reshapes the Middle East - 25th Nov 14
Gold Price Forecast 2015 - 25th Nov 14
The Swiss Referendum On Gold: What’s Missing From The Debate - 25th Nov 14
Clash of Generations - Why Millennials Still Live at Home; Not Jobs, Student Debt, or Housing - 25th Nov 14
Stock Market Reminiscent of Pompeii - 25th Nov 14
Once Upon A Time There Were Philosopher Kings - 24th Nov 14
The 2014 Crude Oil Price Crash Explained - 24th Nov 14
China Stock Investing - Follow the Money! - 24th Nov 14
122 Tonnes of Gold Secretly Repatriated to Netherlands - 24th Nov 14
What Causes the U.S. Dollar to Move? - 24th Nov 14
Stock Market Indexes New Highs - Will Uptrend Extend Even Further? - 24th Nov 14
All Hail the King U.S. Dollar - Trend Forecast - 24th Nov 14
Where Is China Economy On The Map Exactly? - 24th Nov 14
Most of The World Economies Panic - Is The US Next? - 24th Nov 14
Stock Market Exhaustion Gap? - 24th Nov 14
Gold Golden Gains Come After The Pain - 24th Nov 14
Crude Oil and Stock Market Setting The Stage For The Next Recession - 23rd Nov 14
This Publicly-Owned Bank Is Outperforming Wall Street - 23rd Nov 14
Who’s Ready For $30 Crude Oil Price? - 23rd Nov 14
Strategic, Methodological and Developmental Importance of Knowledge Consumption - 23rd Nov 14
Manipulated Stock Market Short Squeezes to Another All Time High - The China Syndrome - 23rd Nov 14
Gold Price 2015 - 22nd Nov 14
Stock Market Medium Term Top? - 22nd Nov 14
Is the Gold And Silver Golden Rule Broken? - 22nd Nov 14
Malaysia's Subsidy and Budget Deficit Conundrum - 22nd Nov 14
Investors Hated Gold at Precisely the Wrong Time: What About Now? - 22nd Nov 14
Gold and GLD ETF Selloff - 22nd Nov 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Gold Report 2015

Where Now for China's Gold Market?

Commodities / Gold and Silver 2012 Nov 12, 2012 - 07:07 AM GMT

By: Adrian_Ash

Commodities

Best Financial Markets Analysis ArticleThe latest from the London Bullion Market Association conference in Hong Kong...

THE ANNUAL conference of the London Bullion Market Association – the "premier professional forum for the world's bullion market" as Haywood Cheung of the 100-year old Chinese Gold & Silver Exchange put it this morning – is taking place right now in Hong Kong.


The timing could hardly seem more urgent. Hong Kong has always had great importance to the global precious metals market – particularly since the 1970s, as several speakers noted on Monday, day one of the LBMA's two-day 2012 conference. But while Hong Kong's dominance as Asia's bullion hub may yet be challenged (it beat off "stiff competition" to be this year's Asian LBMA venue, Cheung writes in the South China Morning Post; Singapore removed general sales tax from gold last month, and now its gleaming new freeport vaults are already booked out, with a second facility being discussed), it's Hong Kong which remains "the gateway to China".

And China remains the big prize for the record 700+ delegates from 279 different miners, refiners, banks, dealers and secure logistics providers gathered here from 39 countries.

"China's appetite for gold has increased rapidly," explained Albert Cheng, managing director for the Far East at market-development organization the World Gold Council after lunch today, "with gold demand growing by an average 24% per annum since 2007.

"China's share of global gold demand doubled from 10% in 2007 to 21% in 2011." And as Cheng's chart shows above, China in fact overtook world #1 consumer India in the first half of 2012.

None of this happened by accident. Not according to keynote speaker Xie Duo – general director of the People's Bank of China. Listing China's #1 position in both gold mining production and now consumer demand, "Gold plays a very important role in the formation of the financial market system," he explained – repeating what PBoC governor  Zhou Xiaochuan told the LBMA's 2004 conference in Shanghai, and then reminding the grand ballroom of the plan which Zhou then set out:

#1. Transform gold from a commodity to a financial investment market: The Shanghai Gold Exchange now boasts 33 financial members, and 3 million individual clients. Meantime, more than 30 commercial banks are active end-to-end in gold, offering both physical and paper gold, and acting as "an important channel for Chinese citizens to be involved."

#2. Transform it from an immediate-delivery to derivative market

Deferred settlement was launched on the Shanghai Gold Exchange in 2004, in a bid to allow greater trading volumes without being hit by shortages . From 2008 to 2010, it accounted for over 60% of the SGE's volume, rising to 73% in 2011. Compared to other "spot" contracts worldwide, said Xie, it's now the most heavily traded, with turnover of 6,000 tonnes last year.

#3. Transform China's trading from a domestic to an international market

Twenty-four hour trading is crucial today, the PBoC general director said. So in 2005 the SGE launched its night-time session, to overlap with the afternoon in London's physical market and morning trade in New York's Comex gold futures. Now that period – from 21:00 to 02:30 – accounts for a third of total SGE volume. It's particularly welcome for those foreign banks which have become members of the exchange, starting with HSBC in 2008.

All this adds up to "big progress in the Chinese gold market," Xie said. "But there is still a long way to go." And which way is that? Remember, we are in China.

"Frankly speaking, this success is the result of free choice by the market and the support of policy," Xie went on. "The government took effective measures to guarantee smooth development."

In particular, late last year it banned the "illegal" gold market, closing down all trading centers outside the officially recognized and managed Shanghai Gold Exchange and the Shanghai Futures Exchange (SHFE). The concern was that "the gold price rise had led to a surge in domestic demand, and that led to margin-trading businesses using overseas derivatives contracts as the underlying asset. That was very risky because of the leverage. So the government is fighting the underground market."

Laying out his own "proposal" for how China's gold market should develop from here, Xie made this concern – the level of risk worn by China's citizen traders – the basis for 3 steps in his 5-step plan. In fact, together with the parallel aim of "guid[ing] investors to trade on the legitimate platforms", keeping a tight rein on free-market provision of gold products pretty much sums it up:

#1. Ensure development of mature market

#2. Perfect the laws, rules and relative policies

#3. Perfect the mechanism of risk aversion and investor protection

#4. Strengthen the market system & accelerate innovation

#5. Promote further opening to the outside world

That last point is for "later on", Xie added, with China's gold market only "fully opened" to foreign players once the other planks are assured. No, this doesn't yet cut both ways; the giant ICBC bank gained approval to buy a major investment bank's operations in Argentina. Yes, the Communist Party may have long considered it "glorious to get rich", but its brand of capitalism remains very alien to the developed West's idea of financial fun.

Seeing the trouble that has caused, however, you might forgive China's leaders for wanting to marry strict regulation with a boom in financial services. Gold investors everywhere might want to thank the bureaucrats' strong hand, too.

"Is China's gold investment demand sustainable?" asked Albert Cheng of the China/Asia panel this afternoon. Yes, replied Zheng Zhiguang, general manager of precious metals at ICBC. Because over the next 10 years, there will be "very stable, progressive economic development. So household incomes will continue to grow. It's in the government's plan."

Put another way, and again looking at the question of a "hard landing" for Chinese consumers and therefore their double-digit gold demand growth rate, "Beijing has tremendous means to achieve its growth targets," said Professor Yu Yongding, a former PBOC member and now at the Institute of World Economics and Politics, just before the conference's morning break.

Western gold owners should hope he's right.

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.


© 2005-2014 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

Free Report - Financial Markets 2014