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Much was
made of the fact China overtook South Africa as the world's No.1
gold-mining producer in 2008. But that came due to South African output
halving from its late-90s' peak.
More
still was made of the surge reported this spring in China's
official gold reserves, up 75% by weight in six years to
1,054 tonnes. Worth $32 billion, however, that lump of metal badly lagged
growth in the People's Bank's total reserves. Thanks to Asia's "savings
glut" – obverse of the West's "galloping consumption"
– the PBoC's hoard of foreign currencies swelled by more than 300% to
over $1.7 trillion.
More
critically still, official Chinese gold holdings actually lagged jewelry and
investment buying by private Chinese consumers...now totaling $42bn since
1998. And the real news, for Western analysts at least, is that as a
proportion of China's massive household savings, gold buying has also risen
sharply – up from a little over 1% to more than 1.8% in 2008.
According
to World Bank estimates, annual household
savings in China have risen three times over in the last 10 years. That's a
four-fold rise in US Dollar terms.
Annual
private gold buying meantime doubled in tonnage (according to data from
incumbent analysts GFMS Ltd in London; mainland China figures), rising
five-fold in Chinese Yuan and rising six times over in US-Dollar terms. So as
a percentage of annual household savings, according to new analysis by us
here at BullionVault, private gold purchases rose sharply...hitting more than
18 Yuan in every CNY1,000 squirreled away last year...and defying Western-analyst
forecasts for "consumer substitution" as disposable income and thus
savings grew.
Put
another way, growth in the value of private gold purchases has consistently
outstripped China's GDP growth every year since 2001, when retail-price
controls were abolished. Come the first-half of 2009, private gold buying in China overtook India to become the world's No.1 market. It grew 8.1% in tonnage from the same period
in 2008, rose 6.4% in Yuan value, and grew more than 8% in Dollar terms.
China's
galloping gold buying wasn't merely a function of the global turnaround in
gold's fortunes at the start of this decade, either. As a proportion of all
retail buying worldwide (covering what GFMS separates into
"jewelry" and "retail investment", although we're not
sure the motives are so distinct), Chinese demand more than doubled from 7.5%
in 2004 to almost 16% in 2008. It reached 31% between Jan. and end-June this
year.
To recap:
The world's No.1 gold producer, China stands at No.5 for official reserves
and No.1 in private buying. If you're buying China, you'd better buy gold as well.
Adrian Ash
Head of Research
Bullionvault.com
Also
by Adrian Ash
City correspondent for The Daily
Reckoning in London, Adrian Ash is head of research at BullionVault.com – giving you
direct access to investment gold, vaulted in Zurich, on $3 spreads and 0.8%
dealing fees.
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.
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