China stepping up gold buying.Looks good for future Gold prices as direct buying from the miners will keep some off the open market.
C/P Kitco
China to purchase gold concentrates from Coeur d'Alene Mines
by Lawrence Williams (Mine
We are now used to China sourcing hugevolumes of metals from external sources to drive its industrial machineforwards, but the latest announcement from Coeur d'Alene Mines (ASX:CXC) on its deal to have its gold concentrates purchased and processedby China's largest gold producer suggests that precious metals are onChina's vast shopping list too.
China is already the world's largest gold miner, and many analystsnow assume - following the country's announcement last year that it hadbeen building up its gold reserves for six years unknown to the West -that it is still expanding its gold holdings in a way that does notnecessarily show the gold going into official reserves. And now itappears to be looking elsewhere to purchase supplies of the yellow metalwithout overtly impacting the market.
What is significant, perhaps, is that this suggests that China'scommitment to gold is both ongoing - and likely to increase. Thecountry, through its financial institutions and state televisionadvertising, has been persuading its ever growing middle classes topurchase gold (and silver) as a good investment. There seems littledoubt that the state is doing the same thing itself as a means ofdiversifying its huge reserves.
Coming back to the Coeur deal, gold concentrates produced atKensington will be processed by China's largest gold producer ChinaNational Gold through an agreement that is the first of its kind betweena state-owned corporation of the People's Republic of China and a U.S.precious metals mine.........China Gold will be paying upfront, whichmeans that in terms of timing, Coeur will get paid seven days aftershipping vs. the typical two-three months that most concentrateproducers must wait, while the metal is being processed at thesmelter/refinery.
This is obviously a very attractive deal for Coeur, speeding up itscashflow, although it covers a relatively small amount of gold for theChinese - but the very fact that this has been put into place suggeststhat other similar deals are likely to be negotiated with other newproducers going forwards. It also means that China's appetite for goldjust cannot be satisfied by its still growing domestic gold mine output -as we noted above already the world's largest.
If indeed it is China's plan to increase its gold holdings, but whilemaintaining an orderly market in the yellow metal, it is a smart move.The main reason, almost certainly, that China did not buy the IMF goldon offer - or even a large hunk of it - would be that to do so wouldhave sent a very overt signal to the market and that the gold pricewould have skyrocketed as a result. Such a movement in the price mighthave been seen on global markets as a vote of no confidence in thedollar - and with China's huge dollar-related foreign exchange holdingsthis would not suit its long term economic policy either.
To buy newly-mined gold production at source is thus a clever ploy.It is not interfering with the gold market directly by being seen tobuy, but picking up gold which is actually never reaching the market.It can then move the gold into some interim holding capacity which doesnot have it showing up in its official reserves until, and unless, itwishes to make this statement to the markets. The fact that, as aresult, less gold is actually reaching the market has a substantiallysmaller impact on it than the overt purchasing of bullion itself.
The move has to be seen as long term bullish for the gold price andis yet another way of limiting downside risk for gold investors. GATAhas for a long time been railing against what it sees as gold pricesuppression by the gold banks and governments, but probably none of thishas the potential impact for control of the gold market which can be,and probably is being, exerted by the Chinese, although they are doingtheir best to keep a low profile - but because this is broadly positivefor gold it may not be in that organisation's interests to comment yetit would seem to be an equally manipulative policy, but in support ofthe goldprice rather than in suppressing it..