China's Gold Boom
China is hot. Investors like hot. Gold is hot in China...
WHICH COUNTRY holds the maximum number of investment seminars and summits focused on Gold and precious metals? asks David Lew for Commodity Online in Mumbai, India.
You may have guessed it right. It's China.
Beijing, Shanghai and other big Chinese cities now play host to more Bullion and precious metals investors and analysts these days than any where else, all focused on the big potential that China has for the global metals market.
Such meetings in China also take a regular look at other commodities as well – whether it is rubber, wheat, rice, plastics, energy, petrochemicals. But everyone wants to talk about the huge investment potential that the Chinese commodities industry has for the world.
Chinese officials and industrialists recently listed a number of global investors who are lining up to invest in the booming Chinese market. They included global investing veterans like George Soros and Jim Rogers. Indeed, the charm for investing in precious metals and other commodities seems to be weak in comparison in other countries like the United States. Every major investor worth the name is banking on the boom in gold, silver, platinum, palladium and other commodities in China.
Why? China's commodity industry is the largest investment sector in the booming dragon land these days. Investors love commodities in China. Even garlic is now one of the hottest agricultural commodities in China to invest in, with prices shooting up by more than 50% in the last few months, causing an acute supply vs. demand crisis.
Investing in garlic is going so crazy in China that analysts are comparing the spicy stuff to gold these days. But it is in precious metals that most investors are piling money in China.
Investments in precious metals such as gold, silver, platinum and palladium are in feverish pitch across China. No wonder, then, that the Chinese consumption of precious metals is dramatically going up, and up. China consumed 395.6 tonnes of gold in 2008 for jewelry and investment, reports the World Gold Council, or around 14% of global demand, up from 327.8 tonnes in 2007. In 2009, gold jewelry and investment demand in China is expected to reach 432 tonnes, compared with 422 tonnes from India. Thus, this year, China will effectively overthrow India as the No.1 gold consumer in the world.
On the derivative exchanges, China's Gold Futures trading volume hit 1.49 trillion Yuan in 2008. This is likely to double in 2009. Ditto platinum and palladium. Physical Chinese demand for platinum jewelry was at around 0.76 million ounces last year, accounting for 68% of the global total of 1.12 million ounces. The latest forecast sees that hitting 1.5 million oz in 2009, which even if it is a gross rather than net (of recycling) remains impressive. The Chinese jewelry demand for palladium increased from 15.5 tonnes to 20.2 tonnes, making palladium another hot commodity in China.
Turnover on the Shanghai Gold Exchange (SGE) on a rolling 12-month basis is the highest it has been, at just under 900,000 oz. The People's Bank of China has also been going all out to mop up gold reserves. In April, China announced that the country had increased its gold reserves by 454 tonnes to 1,054 tonnes over the previous six years. The news has been prompting bullion analysts to predict that China wants to become a super power not jut politically alone, but in gold reserves, mining and sales.
Gold's traditional role as a safe haven asset in times of economic instability has been considerably enforced during the financial turbulence, and the ongoing economic uncertainty becomes the most effective motive for the rise of Gold Prices.
As for China, thanks to encouraging policies established for the Gold Mining industry, the gold production in China has enjoyed continuous growth in recent years. By utilizing the capital market, Chinese mining companies have accelerated the pace of resource acquisition and integration, so as to promote the competitiveness in the international market. What's more, the newly-listed Gold Futures on the Shanghai Futures Exchange (SHFE) mark the start of gold forwards contracts, a key tool for mining firms to raise capital from future production, as well as the reform of Gold Investment in China.
How can China cope with the problems and difficulties of financing mergers and acquisitions, and how to develop a mature Gold Investment market? Together they constitute great challenges to the sustainable development of China's gold industry. For now, China shows an unending appetite for the yellow metal and its production is set to record a new high this year.
For many decades, South Africa used to be the world's number one Gold Mining country. But these days, China is emerging as the top gold miner and producer, as well as its leading consumer. So while South African gold production has steadily declined since 1998 (and Australia's since 2005), China's gold production continues to grow.
China is hot. Investors are hot on China. Commodities are hot in China, and nothing is hotter than gold.
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