China Gold Demand Voracious - Chinese Yuan Gold Standard?

Tyler Durden's picture

From GoldCore

Gold and
silver have recovered somewhat from slight falls in Asia overnight and
are now higher against the British pound and Swiss franc which are
weaker this morning. With geopolitical instability looking set to
escalate and the real possibility of a military confrontation in the
Mediterranean, any sell off in the precious metals will likely be
tentative.

Cross Currency and Precious Metal Table GoldCore

Cross Currency and Precious Metal Table

$1,500/oz for gold and $40/oz for silver remain viable
short term targets and any price dip should be seen as a buying
opportunity. Bullion dealers, including GoldCore, are experiencing only
tentative buying and indeed some selling; buying of bullion is nowhere
near the levels seen during the Bear Stearns, Lehman Brothers or more
recent Eurozone sovereign debt crises.

Total Known Gold ETF Holdings GoldCore

Total Known Gold ETF Holdings

The lack of animal spirits in the gold and silver bullion
markets is also seen in the decline of the gold ETF holdings (see chart
above) and the Commitment of Traders open interest (see below). Neither
show any signs of speculative fever whatsoever.

This would suggest that the recent record prices are due to
short covering on the COMEX (possibly by Wall Street banks with
concentrated short positions as alleged by the Gold Anti-Trust Action
Committee or GATA and being investigated by the CFTC) and buying of
bullion in the Middle East and Asia, particularly in China.

GoldCore

While all the focus is on the geopolitical risk in the
Mediterranean, the not insignificant risks posed by the European
sovereign crisis, the possibility of a US municipal and sovereign debt
crisis and continuing currency debasement internationally are the prime
drivers of gold today.

Quantitative easing, debt monetisation and competitive
currency devaluations have not gone away and are leading to deepening
inflation which will likely result in much higher prices in 2011 and
2012.

Enter the Chinese Gold Dragon

Overnight, UBS confirmed in a Bloomberg article that China
alone imported a massive 200 metric tonnes of gold in just the first two
months of 2011. This gold is being bought by China’s 1.3 billion people
in order to protect against surging inflation (see news).

The FT last week quoted a senior executive of the world’s
largest bank by market capitalisation Industrial and Commercial Bank of
China Ltd. (ICBC) about the “voracious” appetite for gold in China. ICBC
bank has in some two months opened gold savings accounts for more than 1
million savers with more than 12 tons of gold stored on their behalf.

Shopping malls in China are experiencing massive buying of
gold jewellery and ingots as shoppers buy gold as a store of wealth in
order to protect against surging food and energy inflation. Statistics
from Beijing Caibai, Beijing’s largest jewellry store, show sales of
gold bars and jewellry have totaled an incredible 4 billion yuan or
about $600 million US dollars so far this year, a 70-percent increase
year-on-year (see news).

This demand is only the demand from Chinese investors and
savers. It does not include purchases by the less than transparent
People’s Bank of China who are almost certainly continuing to diversify
their massive nearing $3 trillion currency reserves into gold bullion in
order to protect themselves from their massive dollar ($1.6 trillion
dollars of US debt alone, according to the Treasury Department) and
other currency exposure.

Chinese Yuan Gold Standard

China is clearly trying to position the yuan or renminbi as the
alternative global reserve currency. The Chinese likely realise that
they will need to surpass the Federal Reserve’s official, but unaudited,
gold holding of 8,133.5 tonnes. China is the sixth largest holder of
gold reserves in the world today and officially has reserves of 1054.1
tonnes which is less than half those of even Euro debtor nations France
and Italy who are believed to have 2,435.4 and 2,451.8 tonnes
respectively.

China’s ambitions to rival and even supplant the dollar
were seen overnight with news that China is to allow all exporters and
importers to settle their cross-border trades in the yuan this year. The
People’s Bank of China said that it was “part of plans to grow the
currency's international role” and “would respond to overseas demand for
the yuan to be used as a reserve currency.”

Russia is also attempting to position the Russian ruble as a global reserve currency (see news).

World Bank President Robert Zoellick recently mooted the
possibility of a return to some form of gold standard. It seems
extremely likely that senior and influential Chinese policy makers,
bankers and government officials may be having similar thoughts.

Gold Bubble?

The lack of knowledge of the vast majority of
people about gold and the very important developments in the gold
markets with significant macroeconomic, monetary and geopolitical
ramifications is hardly indicative of a bubble.

Nor is the instinctual aversion and bias against gold by
some today. Indeed, the negativity displayed against gold by a minority
(normally vested interests offering other investment or saving products)
in recent years and continuing today may be partly due to some feeling
unwise due to their failure to predict gold’s rise and return as a
global currency.

The significant and continuing price appreciation of
something they don't own, they don't understand and did not advise
people to diversify into has some looking somewhat imprudent.

NEWS

(Bloomberg) -- Gold Is Heading for $2,000 in 12 Months, Deutsche Bank Says

Gold is heading for $2,000 an ounce in the next 12 months, Deutsche
Bank AG said in a report. Silver may average $50 an ounce next year,
Deutsche Bank analyst Daniel Brebner said in the report e-mailed today.

(Bloomberg) -- Russia Depository Bought 3.4 Tons of Gold in 2011, Interfax Says

Russia’s Gokhran state depository
bought 3.4 metric tons of gold from producers last year, more
than the 2.5 tons previously reported, Interfax reported, citing
unidentified sources in the organization.

The state precious-metals and gems depository purchased 5
tons of gold in 2009, according to Interfax. Russian banks last
year bought 148.8 tons of gold from producers, led by OAO
Sberbank, Nomos Bank and OAO Sberbank, the news service
reported.

(Russia-Media.RU) –Russia’s currency- and gold reserves up 4.8 billion USD during last week

The External and Public Relations Department of the Bank of Russia
informed on Thursday that the country’s international currency and gold
reserves are up 4.8 billion USD or 1.0 percent during last week to a
volume of 492.2 billion USD per 25 February 2011.

Since 1 January 2011 the reserves are up 12.8 billion USD.

The reserves have been on 478.7 billion at 1 January 2008, 427,1
billion 1 January 2009, 440,6 billion USD January 2010 and 479.4
billion USD at 1 Januar 2011. They reached their highest volume with
598,1 billion USD before the conflict with Georgia about South-Ossetia
in the beginning of August 2008.

(Bloomberg) -- World Food Prices Rose to a Record in February, UN Says

World food prices rose to a record in February, the United Nations
said. Its FAO Food Price Index averaged 236 points, the group said in a
notice on its website today.

(Bloomberg) -- Commodity Index Extends Rally to 29-Month High on Cotton, Sugar

The Thomson Reuters/CRB Index of 19 commodities rose to a 29-month
high, led by gains in cotton, sugar, silver and crude oil. The index
advanced 0.6 percent to 357.32 at 9:33 a.m. in New York, after touching
357.67, the highest since Sept. 29, 2008.

(DPA) -- Swiss central bank reports loss of 20.7 billion dollars in 2010

The Swiss National Bank (SNB) reported Thursday a consolidated loss
of 19.17 billion Swiss francs (20.7 billion dollars) last year, largely
due to the appreciating value of the Swiss currency.

The results compare with a profit of 9.96 billion francs in
2009. A profit of 2.6 billion francs was recorded by its so-called
stability fund, which holds toxic assets from UBS AG, the Swiss bank
that required a bailout in 2008.

But currency interventions were costly for the central bank, which
has tried to prevent too quick a rise in the franc versus the dollar
and the euro. Despite these market interventions, the franc has hit
new highs against the major currencies.

Philipp Hildebrand, head of the SNB, has warned of deflationary
risks from a strong franc to justify the interventions, which at
times have been controversial in Switzerland.

The sharp rise in the price of gold resulted in valuation gains of
5.82 billion francs for the SNB, on unchanged gold holdings of 1,040
tonnes.

(Wall Street Journal) -- Bernanke Unfazed By Gold Standard, Currency History Queries

WASHINGTON -- Federal Reserve Chairman Ben Bernanke defended the
central bank's effect on the dollar Tuesday, pushing back at the idea
that policy makers should consider alternative proposals like the gold
standard.

Bernanke, appearing before the Senate Banking Committee, was
pressed by Sen. Jim DeMint, R-S.C., on the viability of a return to a
gold-backed economy or the idea of the Treasury Department issuing bonds
payable in gold.

Bernanke, who has studied the issue, said a return to the gold standard wouldn't work.

"It did deliver price stability over very long periods of time,
but over shorter periods of time it caused wide swings in prices related
to changes in demand or supply of gold. So I don't think it's a
panacea," Bernanke told DeMint.

Additionally, Bernanke said there were a number of practical
issues that would prevent the return of gold as the world standard.
Namely, there's not enough gold in the world to effectively support the
U.S. money supply.

"I don't think that a full-fledged gold standard would be
practical at this point," Bernanke said, declining to opine on the
gold-backed bond issue because he was not familiar with the idea.

Sen. Mark Kirk, R-Ill., also engaged Bernanke on the currency
issue, questioning whether the Fed's $600 billion bond-purchase program
is in effect monetizing the U.S. debt. Bernanke noted that the U.S
couldn't have currency outstanding if there were no Treasury securities
to back it up, and that even the most steady economic times the Fed
engages in the buying and selling of U.S.-backed securities.

Kirk, however, noted that the United States did have currency
not backed by federal debt at one time in its history: under the
administration of President Andrew Jackson, the nation's seventh
president.

Bernanke, appearing amused, was quick to respond.

"So this was before the Civil War. This was during the period
where individual banks issued currency. We didn't have a national
currency," Bernanke said.

Not to be outdone, Kirk asked whether it was possible for a
country to have a currency without a trillion-dollar debt. Bernanke said
that was the case.

(Bloomberg) -- Turkey Gold Imports 5.48 Tons in February, Exchange Data Show

Turkey’s gold imports reached 5.48
metric tons in February, the Istanbul Gold Exchange said in a
report on its website.

The country imported no silver in February, the data show.

(Bloomberg) -- Gold Buying in China Jumps as Inflation Flares, Boosting Demand, UBS Says

Gold purchases in China, the world’s largest producer, climbed to
200 metric tons in the first two months of 2011 as faster inflation
boosted consumer demand, according to UBS AG, which said the price may
gain to $1,500.

“China is the big buyer,” Peter Hickson, global commodities
strategist at Switzerland’s largest bank, said by phone yesterday,
without giving a comparable figure for 2010. The estimate for the
two-month period compares with full-year consumer demand from China of
579.5 tons for last year, according to the World Gold Council, a
producer-funded group.

Bullion, which rallied 30 percent last year, surged to a record
yesterday as uprisings in the Middle East, quickening inflation and
currency debasement boosted global demand. China’s consumer prices rose
4.9 percent in January from a year earlier, exceeding policy makers’ 4
percent ceiling for a fourth month.

“Chinese interest is huge,” said Peter Tse, Hong Kong- based
head of precious metals at Bank of Nova Scotia. “Demand for physical
gold and imports has increased substantially” due to the Lunar New Year
holiday, Tse said today, referring to the week-long break that began
Feb. 2.

Immediate-delivery gold was at $1,429.05 an ounce at 5:08 p.m.
in Singapore compared with yesterday’s peak of $1,434.93.
Yuan-denominated bullion rose 0.5 percent to 303.58 yuan ($46.19) a gram
in Shanghai, approaching the record 314 yuan, set Nov. 9.

‘Gold Is Attractive’

“Gold is attractive,” Hickson said. “The more the market becomes
concerned about inflation or concerns about unrest in Africa, more and
more people will look to gold.” The price may rise to $1,500 an ounce in
the next six months, said Hong Kong- based Hickson, who’s worked for
UBS since 1996.

Blackstone Group LP’s Byron Wien said in January that gold may
rise to more than $1,600 this year “as investors across the world place
more of their assets in something they consider ‘real’.” The price may
reach $1,600 this year, Wayne Atwell, a managing director at Casimir
Capital LP said the same month.

Protests partly linked to record food prices have erupted across
North Africa and the Middle East this year, toppling leaders in Tunisia
and Egypt and boosting oil prices. Libyan rebels braced for renewed
clashes today with forces loyal to leader Muammar Qaddafi. Iranian
protesters have clashed with security forces in Tehran, Al Arabiya
reported.

Gold investment in China, the largest buyer of the precious
metal after India, may gain 40 percent to 50 percent this year amid a
lack of alternatives, Wang Lixin, China representative for the World
Gold Council, said last month. He called that forecast a “conservative
estimate.”

Bars and Coins

China’s investment demand in 2010 jumped 70 percent to 179.9 tons,
surpassing Germany and the U.S., as buyers sought out bars and coins,
the London-based industry group said. Consumption by the jewelry sector
rose to a record 399.7 tons, it said. China imported more than 300 tons
last year, People’s Bank of China Vice Governor Yi Gang said on Feb. 26
in Beijing.

China may be the “next big buyer” of gold, driven by
institutional and retail demand, Credit Suisse Group AG analyst Tom
Kendall said in Cape Town on Feb. 7. “If you’re sitting there in China
with money in a deposit account, you’re losing between 1-2 percent a
year through inflation,” Kendall said.

The boom in gold demand in China is driven by concern about
inflation pressure and the poor performance of alternative investments,
the producer-funded council has said. Premier Wen Jiabao pledged on Feb.
27 to boost food supplies to hold down costs, and to tackle surging
property prices.

Spooked by Inflation

Jewelers at shopping malls across Beijing are witnessing a gold rush
as residents spooked by inflation look to protect their money, the
China Daily reported on Feb. 28

Statistics from Beijing Caibai, the city’s largest jewelry
store, show sales of gold and other jewelry have totaled about 4 billion
yuan so far this year, a 70 percent increase from a year ago, the
report said.

China displaced South Africa as the world’s biggest gold
producer in 2007. Imports through last October rose almost fivefold to
209 tons from the total shipped in the previous year, according to the
Shanghai Gold Exchange. Mine output reached a record 340 tons last year,
the China Gold Association has said.

The Industrial and Commercial Bank of China Ltd., the world’s
biggest lender by market value, started physical-gold linked savings
accounts in December with the World Gold Council. Account openings have
surpassed 1 million, with more than 12 tons of gold stored on behalf of
investors, it has said.

(China Radio International - CRI) - Malls Witnessing Gold Rush as Shoppers Fear Inflation

Jewellers at shopping malls across Beijing are witnessing a gold rush amid inflation fears.

Statistics from Beijing Caibai, the city's largest jewellry
store, show sales of gold and other jewellry have totaled about 4
billion yuan or about $600 million US dollars so far this year, a
70-percent increase year-on-year.

Wang Chunli, general manager, said that hundreds of customers
are lining up outside every day to buy gold accessories, such as
necklaces and rings.

After seeing the enthusiasm for gold investment, insiders predict prices will continue to rise this year.

The price has already reached 338 yuan a gram at Caibai, according to data from cngold.org, a popular gold investment website.

A report released by the World Gold Council at the end of 2010
said China is the strongest market for gold investment and gold
accessory purchase.

(Zero Hedge) -- As Silver Touches $34.90, US Mint Runs Out Of Bullion
Blanks, Halts American Eagle Silver Coin Production

The scramble for non-dilutable currencies hits a frenzy as silver
just touches on a fresh 31 year high of $34.90. To commemorate this
historic event, the US Mint has halted American Eagle silver coins
production, in addition to its ongoing halt of American Buffalo coins:
"because of the continued demand for American Eagle Silver Bullion
Coins, 2010-dated American Eagle Silver Uncirculated Coins will not be
produced. The United States Mint will resume production of American
Eagle Silver Uncirculated Coins once sufficient inventories of silver
bullion blanks can be acquired to meet market demand for all three
American Eagle Silver Coin products."

From the US Mint: Production of United States Mint American
Eagle Silver Uncirculated Coins continues to be temporarily suspended
because of unprecedented demand for American Eagle Silver Bullion Coins.
Until recently, all available silver bullion blanks were being
allocated to the American Eagle Silver Bullion Coin Program, as the
United States Mint is required by Public Law 99-61 to produce these
coins “in quantities sufficient to meet public demand . . . .”

Although the demand for precious metal coins remains high, the
increase in supply of planchets—coupled with a lower demand for bullion
orders in August and September—allowed the United States Mint to meet
public demand and shift some capacity to produce numismatic versions of
the American Eagle One Ounce Silver Proof Coin.

However, because of the continued demand for American Eagle
Silver Bullion Coins, 2010-dated American Eagle Silver Uncirculated
Coins will not be produced.

The United States Mint will resume production of American Eagle
Silver Uncirculated Coins once sufficient inventories of silver bullion
blanks can be acquired to meet market demand for all three American
Eagle Silver Coin products.