Eyes On China

With demand for gold from India taking a noticeable pause, investors will be looking towards China for further clues on gold demand.

Although the general investor sentiment seems to be leaning towards gold demand being healthy, India, one of the largest buyers of gold, doesn't seem to agree as its investors appear to be waiting on the sidelines for who-knows-what. According to Swiss bank, UBS, gold is 'plentiful' in the Indian markets - and obviously a good supply may very likely counter any steady demand; for India at least...

I believe that India, and most of the other continents, will be turning their attention towards China's demand. With housing prices having fallen this November from the previous month in 49 of the country's 70 cities, some analysts are claiming this as evidence that China is starting to slow down. This "slowing" is of course in no small part due to China's efforts to minimize or avoid inflation (China's high property prices were caused by a stimulus package in late 2008 amongst other factors).

A slowing economy and slight drops in housing prices may seem daunting, but the question I'm interested in is whether these indications will affect gold demand and, hence, gold prices. Yes, China's economy may be tapping on its breaks a bit and yes, its housing market is still experiencing the ripples of a long ago stimulus package and other attempts to steer away from inflation, but I personally don't think that these factors are enough to ruin China's actual demand for, and ownership of, gold bullion at this juncture.

According to the World Gold Council, China's total gold demand should grow to reach 750 tons for 2011, a promising number indeed. Gold bullion bar and coin ownership in China has grown 69.5% in 12 months, with an estimated 528 tonnes of gold now held by private investors - this makes China the world's largest gold owning nation, followed by India, which actually experienced a 34% increase in ownership to approximately 409 tonnes.

We also need to keep in mind that very recently, (last Friday) the Industrial and Commercial Bank of China Ltd (ICBC), the world’s largest bank when measured by market value, joined the London Bullion Market Association (LBMA) as a full member. According to an e-mailed statement, this Beijing-based bank intends to become a global precious metal investment and management bank. Gold imports from Hong Kong surged 51 per cent to a record in October as investors protectively hedged against turmoil in the financial markets and now the local, and largest, bank in the world is an LBMA member. Hmmm.

On December 1st according to Cheng Binghai, chairman of the Shanghai Gold & Jewelry Association, ICBC has become the world's largest retailer in China, by volume, after selling over 40 tons of gold in just the first 10 months. So will a slowing expansion and housing issues hamper China's demand for gold? I'm not too worried.

As I stated in my last blog on December 6, 2011, while also quoting Clive Maund, gold would break out of a sideways triangle to the downside first before possibly beginning a steady rally on up. The downside break happened, and now gold appears to be on its way towards a steady growth yet again. Only time will tell, but I'm more interested in the medium to long term assessments of gold as well as all of the other precious and noble metals.

Patience and more power to all you bugs out there,

- Tom