Since China
began to embrace economic progress in the 1990s and let the compelling forces
of capitalism take hold to raise living standards in that country, its impact
on world markets has been profound. Chinese capital has become a major
influence in the global economy, and demand from China has had a huge impact
on commodity prices. But an exception to the Chinese influence has been gold.
China has had
little impact on world gold markets. The reason being that Chinese domestic
gold production, which over the past several years has grown to make China
the largest gold miner in the world, was sufficient to satisfy domestic
demand. Consequently, in contrast to other markets in which China has become
an important source of demand, it has had little impact on the demand for
gold.
Just over a
year ago, however, the balance between Chinese gold production and demand
began to change. Chinese mining companies were unable to produce enough metal
to satisfy the growing domestic demand, with the result that China began
importing gold.
The trend
for importing gold began modestly, and received little attention. But last
year this growing trend started to get noticed. The Financial Times in
September 2011, for example, reported: “Data from the Hong Kong
government showed that China imported a record 56.9 tonnes
[of gold] in September, a six-fold increase from 2010. Monthly gold imports
for most of 2010 and this year run at about 10 tonnes,
but buying jumped in July, August and September. In the three-month period,
China imported from Hong Kong about 140 tonnes,
more than the roughly 120 tonnes for the whole
2010.”
More
recently, Reuters reported: “China imported nearly a fifth more gold
from Hong Kong in November [2011] than the previous month, continuing a trend
of sharply rising purchases that has seen bullion flows to the mainland more
than treble in the first 11 months of the year. A record 102.525 tonnes of gold entered the mainland from Hong Kong in
November, the Hong Kong Census and Statistics Department said.”
These are
huge numbers. Last year India imported approximately 900 tonnes
of the roughly 2,800 tonnes of gold mined last
year. But China is rapidly closing the gap, and is likely to overtake India
in the next few years. The impact on the global gold market from such an
event, if it were to occur, would be profound and obviously very bullish. But
even if China does not become the world’s largest gold importer, the
inability of Chinese producers to mine enough metal to meet domestic demand
will alone be very bullish for the gold price.
Given the
above it is clear to see that China has become an important influence in the
gold market and consequently, on the gold price. It is therefore another
reason to remain bullish on the prospects for the metal of kings.
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