China is approaching another ‘world’s largest’ designation, this time world’s largest consumer of gold, a title currently held by India. Since August, when the government made it easier for consumers to buy gold and more banks to import it, demand has soared in what is already the world’s largest gold producer as investors have sought insurance against rising inflation, falling property and stock markets and uncertainties over currencies from the yuan to the dollar to the euro. A bull market in bullion won’t have hurt, either.
Shen Xiangrong, chairman of the Shanghai Gold Exchange, describes the situation as a “private gold hoarding boom“. Shen said that the gold transaction volume on the exchange in the first 10 month of this year, at 5,015 tonnes, was 43% higher than in the same period of 2009, with transaction values topping 1.3 trillion yuan ($195 billion). China does not normally make public its gold trade figures, but Chen, who was speaking at a gold conference in Shanghai, said that imports in the first 10 months of this year were 210 tones, a 480% increase on the same period a year earlier.
On an annualized basis, China’s gold imports would reach 250 tonnes this year. Applying a simmer projection to the official gold output numbers, domestic production could reach 325 tonnes for 2010. Combine the two and it puts China, at 575 tonnes, up from 400 tonnes in 2009 and stealing up on upon India’s total gold demand last year of 612 tones. India’s imports, too, have been on the rise this year, so its overall demand is likely to have increased, as well, but it seems a case of when, not if China’s demand overtakes it. A measure of how far China has been satiating its appetite for gold is that a decade ago demand was 200 tonnes.
With world gold prices touching (nominal) highs, Chinese investors are going to be exerting increasing influence on the gold price. The Shanghai Gold Exchange is studying new products such as spot options and exchange-traded certificates to exploit the new interest, Shen says.
Another potential purchaser of gold is the central bank. Xia Bin, an advisor to the People’s Bank of China, has echoed recent calls for the bank to add to its gold reserves as a way to boost the credibility of the yuan’s internationalization. Gold accounts for 1.6% of the reserves held by the People’s Bank of China, according to the World Gold Council. With $2.65 trillion in foreign-exchange reserves, it has plenty of cash with which to increase that share.