Gold News

Strong Year for Gold in China

Both production and consumption rise as China prepares for Year of the Dragon...

IN BEIJING the Gold Price has exceeded 430 Yuan ($67.69) per gram, but consumer enthusiasm to buy the yellow metal is just as high as the price of the precious metal, writes MineWeb's Shivom Seth from Mumbai.

Reports indicate that China and the Chinese government are keen to accumulate the yellow metal over the coming months.

Though the Chinese traditional lunar Year of the Dragon is still two months away, dragon related gold products have already started appearing in most shops across the country, enticing buyers. 

According to data from the website of the Ministry of Industry and Information Technology, China's gold output rose by 8.436 metric tonnes, or 3.87% year on year, to reach 226.388 metric tonnes during the January to August 2011 period. In August alone, China produced 31.889 metric tonnes of gold, up from 30.08 metric tonnes in July, data showed.

"There is excellent gold demand in China from retail investors, but it is very difficult to separate the official buying from the institutional or the retail buying. Data shows that China's share of global demand for gold has increased from just 6% in the year 2000 to 18% in 2010,'' said Rakesh Shah, commodities analyst with an institutional investor firm.

Analysts add that it was only in 2003 that China officially and for the first time reported its gold reserves at 600 tonnes. For the next five years, there was silence from the region with speculation mounting about the country adding to its reserves. 

In 2008, China surprised the market by announcing that the People's Bank of China had doubled its gold reserves in the past five years to 1054 tonnes. Moreover, the State owned Assets Supervision and Administration Commission also disclosed that a team of experts had set up a task force in 2008 to study the issue of gold reserves. The team has reportedly been considering very large gold purchases over the next 8 to 10 years, but has not been able to reach a unanimous decision on this.

"Very little is known of gold in China. The government wants to keep it that way. But most foreign investors are aware that China is actually accumulating gold,'' said Santosh Debri, bullion analyst with a brokerage firm.

Official data from the People's Bank of China shows as of April 2009, China added 33.89 million fine troy ounces to its gold reserves. Data till September 2011, shows that China continues to have 33.89 million fine troy ounces as its reserves.

Though little is known of its reserves or how the government is keen to enhance it, for several years now, China has been making the most of its cost advantage to become the world's largest gold producing country. In 2007, China overtook South Africa as the world's largest gold producer.

The Shandong Province, known as the Kingdom of Gold, produces 26% of the gold mined in China. China's major gold deposits are in Shandong province's Jiangjia village which reportedly sits on a rich gold reserve. Other major production areas include Heilongjiang, Henan, Hubei and Sichuan provinces.

ZhaoYuan city has led the country's gold output for the past 35 years. Gold prospectors from other provinces started appearing in the village in the 1980s, and the mountain soon became a collection of privately owned mines.

At the recently concluded China Mining Congress and Expo 2011, held in the northern coastal city of Tianjin, Sun Zhaoxue, president of China National Gold Group Corporation was quoted by newswires as saying China has proven gold reserve of 6,327.4 tonnes.

The official is also the head of the China Gold Association. He added that gold output in the first nine months of 2011 has hit 259 tonnes. "I am optimistic about the prospect of China's gold industry. There is potential for further increases,'' the official was quoted as saying.

That China is the world's biggest gold producer and consumer is helped by the fact that its gold output crossed 340.88 metric tonnes in 2010. In the first eight months of 2011, reports indicate that the combined output value of Chinese gold producers totalled 169.1 billion Yuan ($26.54 billion), up 23.14% year on year.

The government is keen to aid the industry and Northwest China's Qinghai province plans to invest nearly 18 billion Yuan ($2.82 billion) over the next five years to exploit its rich mineral resources. According to the province's plan for geological prospecting during the 2011-2015 period, Qinghai has budgeted 17.9 billion Yuan for excavating gold, coal, iron, copper, lead, zinc and cobalt, according to information from the Provincial land and resources Department.

The budget is said to be more than five times the 2006-2010 spending, which totalled 3.4 billion Yuan, data showed. The Qinghai province has reported new discoveries of gold, coal, iron ore, and silver reserves in the past five years.

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Founded in 1999 as part of the Johannesburg-listed MoneyWeb media group, Mineweb is one of the world's leading sources of mining and metals-investment news, comment and analysis. Managed since 2003 by professional mining engineer Lawrence Williams – formerly of Mining Journal, and with more than 30 years' technical and financial experience in the sector – MineWeb provides thorough, international coverage of the natural resources industry.

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