Chinese Gold Demand SurgesWall Street Journal Market Beat
Gold Demand: ‘Huge Buying from China’
By Carolyn Cui
The Journal’s Carolyn Cui and Dow Jones’ Chris Oliver report:
- Bloomberg News
Gold’s record rally has been attributed to everything from worriesabout inflation, the dollar and the emergence of exchange-traded funds.One big factor many may have missed: huge buying from China.
Data cited Thursday by China’s state-run Xinhua news agency showedthat China imported 209.7 metric tons of gold in the first 10 months ofthe year, a fivefold increase compared with the same period last year.
That surpassed purchases made by ETFs and surprised analysts, whountil now had no clear insight into the size of China’s buying.
Gold demand in general has soared globally this year, as a result ofthe sovereign-debt crisis in Europe and the Federal Reserve’s new roundof bond buying. Gold prices were pushed up to an all-time high of$1,409.80 a troy ounce on Nov. 9. Thursday, gold settled $1.20 higher,or 0.1%, to $1,388.50, up 27% for the year.
“Everybody in the gold market knew there was a surge in investmentdemand, but they didn’t know it was China,” said Jeff Christian,managing director at CPM Group.
China’s import growth is a reminder of the country’s huge but nascent purchasing power.
It comes as the government loosens its restrictions on gold purchasesby financial institutions and individual investors. In August, thecountry began allowing more banks to import and export gold, opening upthe gold market to the institutions and their clients.
Then this week, the Chinese securities regulator approved thecountry’s first gold fund designed to invest in overseas-listed goldETFs, a move analysts interpreted as another bullish sign for gold.
“The big picture is that China is continuing to relax the rulesgoverning the domestic gold market,” said Martin Murenbeeld, chiefeconomist of DundeeWealth Inc., which oversees $69.9 billion in assets.“What we are seeing is the latent demand that has been there all thetime and now can be exercised in the market because now the market isfreed.”
The World Gold Council estimates that China’s gold demand coulddouble in 10 years as more investors there embrace precious metals.
Until several years ago, China’s gold market was strictly controlledby the central bank, which bought all the gold mined domestically. Itthen sold the metal to jewelry makers. The country, which is now thelargest gold producer, remained largely self-sufficient in gold, withimports at a meager 31 metric tons in 2009, according to GFMS Ltd.
This year, fears of inflation have driven many Chinese investors toinclude gold in their portfolios as a store of value. At the ShanghaiGold Exchange, trading volume increased 43%, to 5,014.5 tons, in thefirst 10 months of 2010, exchange Chairman Shen Xiangrong said,according to Xinhua.
At a speech at the China Gold and Precious Metals Summit in ShanghaiThursday, Mr. Shen detailed the size of China’s imports this year,Xinhua said. Those purchases were big enough to absorb all the gold thatthe International Monetary Fund had shed during that time period, whichstood at 148.6 tons. It also dwarfed the SPDR Gold Shares, the world’slargest gold-backed ETF, which added 159.48 tons of gold into itsholdings in the same period.
China also is home to a booming gold-mining industry that keeps it asthe world’s largest gold producer. Wednesday, China’s Ministry ofIndustry and Information Technology said the nation’s gold productionreached 277.017 metric tons in the January-to-October period, up 8.8%from the same period last year.
China’s 2010 gold production is expected at about 350 metric tons,according to Standard Bank head of commodity strategy Walter de Wet.
“We note that there is likely to be illegal gold exports and importsfrom and to China,” Mr. de Wet said in a note to clients. “This woulddistort the actual gold numbers for China. However, the trend isundeniable, gold demand in China is rising rapidly.”
In other commodities markets:
CRUDE OIL: Prices settled at a two-year high Thursday, with oil forJanuary delivery rising $1.25, or 1.4%, to $88 a barrel on the New YorkMercantile Exchange, as economic data in the U.S. and actions in theeuro zone to support debt markets lifted hopes for oil demand. Improvingeconomic conditions in the U.S., the world’s largest oil consumer, arevital to continuing the drawdown in global supplies that piled up duringthe recession. Tightening supplies could help clear the way for oilprices to hit $100 a barrel next year.
—Tatyana Shumsky contributed to this article.