China goes on gold binge, as world wonders why
No easy answer why the fifth largest holder of metal has increased purchases
By Gordon G. Chang
1/31/2012
This month, the Hong Kong Census and Statistics Department reported that China imported 102,779 kilograms of gold from Hong Kong in November, an increase from October’s 86,299 kilograms. Beijing does not release gold trade figures, so for this and other reasons the Hong Kong numbers are considered the best indication of China’s gold imports.
Analysts believe China bought as much as 490 tons of gold in 2011, double the estimated 245 tons in 2010. “The thing that’s caught people’s minds is the massive increase in Chinese buying,” remarked Ross Norman of Sharps Pixley, a London gold brokerage, this month.
So who in China is buying all this gold?
The People’s Bank of China, the central bank, has been hinting that it is purchasing. “No asset is safe now,” said the PBOC’s Zhang Jianhua at the end of last month. “The only choice to hedge risks is to hold hard currency — gold.” He also said it was smart strategy to buy on market dips. Analysts naturally jumped on his comment as proof that China, the world’s fifth-largest holder of the metal, is in the market for more.
There are a few problems with this conclusion. First, the Chinese government rarely benefits others — and hurts itself — by telegraphing its short-term investment strategies.
Second, the central bank has less purchasing power these days. China’s foreign reserves declined in Q4.
.
.
.
A better explanation for the gold-buying binge of Chinese citizens is that they are using the shiny commodity as an inflation hedge, as the Financial Times recently suggested. Yet the buying of gold has increased while inflation has eased. And that means there must be another explanation. The best explanation is that individuals in China are using gold as a substitute for capital flight.
Although indicators showed the Chinese economy faltered only at the end of September, there had been a growing sense of pessimism inside the country for months before then. Beijing, after all, could build only so many “ghost cities” before citizens began to notice. As Joseph Sternberg of the Wall Street Journal Asia said on the John Batchelor Show last Wednesday, “people inside China seem to be losing faith in the Chinese growth story that we’ve been hearing so much about for the past few years.” Estimates of capital flight are sketchy, but it appears there was $34 billion of it in the third quarter of last year and a $100 billion in the fourth.
Not every Chinese citizen is in the position to export cash, so the next best tactic for the nervous is to buy gold, a refuge from plunging property prices and declining stock markets as well as an anticipated depreciation of their currency.
.
.
.
Chinese asset values have not yet crashed across the board, but the buying of gold — a leading indicator of panic — is an especially troubling sign that they will. Therefore, it is not surprising that gold purchases by Chinese citizens and investors are frightening Beijing’s technocrats. At the end of last month, they shut all of the countries gold exchanges other than two of them in Shanghai.
Full story: http://www.msnbc.msn.com/id/46205510/ns/business-world_business/
Gold is $1,581/oz today. When it hits $2,000, it will be up 26.5%. Let's see how long that takes. - De 3/11/2013 - ANSWER: 7 Years, 5 Months
| 