Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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