Cameron Alexander wrote an interesting article on Chinese gold demand in CME Group’s publication Open Markets. The Chinese have rushed to take advantage of low gold prices this year, and China’s central bank is talking about easing restrictions on gold imports going forward. China is on track to surpass India in global gold demand this year. Alexander explains the gold mania inherent in Chinese culture and what a vital role the yellow metal will play in the Chinese economy going forward.
“As the gold price fell almost 30 percent between January and June this year, the largest decline since 1983, some 585 tonnes of gold ETF holdings were liquidated as momentum driven investors exited the market. The price fall prompted physical demand in China to reach astonishing levels, however, as mainland consumers rushed to purchase the yellow metal.
The price collapse was seen as an unprecedented opportunity by many to restock gold assets, with Chinese “aunties”, a term of respect for older women who are generally in charge of household budgets, seizing the opportunity to stock up on gold items and seasonal gifts, purchases of which were normally scheduled for the later part of the year. This led to the frenzy in retail activity that was witnessed across the country in the second quarter. The groundswell in demand saw these aunties willing to line up outside retail stores literally for hours in a bid to get their hands on some form of gold product, be it plain jewelry (primarily 24-carat) or investment bars, and in many cases, led to outlets being completely wiped out of all inventory.”
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Dear Peter,
I admire your work and conviction in the fundamentals.
And also the way you think and anticipate the problems and recognize the causes.
Btw, I am from India
China’s rmb can become an international reserve currency in a hurry if it is backed by gold on a fractional reserve basis.
Assuming 2000 USD per troy oz., 30000 troy oz, per ton, and a reserve ratio of 10%, 5000 ton of gold would allow China to issue 3 trillion USD ( 2000*30000*5000*10 ) worth of international reserve currency.
A gold backed international reserve would certainly force the US to increase interest rates on its treasuries if it does not dethrone the US dollar as the number one reserve currency.
well your maths is wrong 2000*30000*5000*10%
is not 3 trillion it is 30 billion. an error factor of 100 times. plus china does not hold 5000 tons of gold. no country holds that much
His math was wrong, but the United States does hold more than 8,000 metric tons of gold. http://www.gold.org/government_affairs/gold_reserves/
Great post! Been reading a lot about different opinions on this. Thanks for the info!
the chinesse market is absolutly mistery,but they know what to do.