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WGC Releases China Gold Report - "A New World Of Opportunity" As PBoC Expected To Buy Gold, Chinese Gold Mines Become Depleted

Tyler Durden's picture





 

The World Gold Council spares no praise for the imminent surge in demand in China.

"The World Gold Council (WGC) believes that gold consumption in China will continue to catch up with the rest of the world following the deregulation of the Chinese gold market in 2001. Demand from China’s two largest sectors (jewellery and investment) reached a combined total of 423 tonnes in 2009 but domestic mine supply contributed only 314 tonnes during the same year. This Shortfall creates a “snowball” effect as China’s gold industry may not be able to keep pace with the annual leap in domestic consumption despite rising to be the world’s largest gold producer since 2007. Although the country’s appetite for gold has grown, making China the second largest consumer in the world, demand in China per capita has a lot of catching up to do to equal that of Western economies. In jewellery, the Chinese per capita consumption is one of the lowest at 0.26gm when compared to countries with similar gold cultures. If gold were consumed at the same rate per capita as in India, Hong Kong or Saudi Arabia, annual Chinese demand could increase by at least 100 tonnes to as much as 4,000 tonnes in this sector alone. Nearterm inflationary expectations and rising income levels are likely to support the investment case for gold as an asset class, especially given that Chinese consumers are high savers and are looking to gold to protect their wealth.

Keep an eye out on what the PBoC will do if and when it finally decides to readjust its gold holdings.

The People’s Bank of China (PBoC) is also playing an increasingly supportive role for gold on the demand side. PBoC’s gold holdings are currently at 1.6% of its US$2.4tn total reserves – a fraction by international standards. If PBoC decides to rebalance its books to its recent peak gold holding as a proportion of reserves of 2.2% in Q4 2002, WGC estimates it could account for a total incremental demand of 400 tonnes at the current gold price.

Will supply meet demand at current prices? Negatory ghost rider. Existing gold mines are expected to be exhausted in six years. Oops.

WGC analysis shows that, structurally, supply growth in China could be challenging unless there is more funding directed to exploration. Assuming the US Geological Survey’s figures are correct, China may exhaust existing gold mines in just six years. Despite the strong Yuan, total production costs have also risen by more than 30% in the last six years due to higher input costs (such as energy and labour) and lower ore grades. The outlook for gold in China remains positive and WGC believes that the balance between demand and supply in the Chinese gold market will continue to be in disequilibrium. In the longer term, if China continues to grow at near to the current rate in economic and wealth terms, gold consumption in China will continue to expand and has the potential to double during the next decade.

Full report.

 

 


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Mon, 03/29/2010 - 10:13 | Link to Comment Quintus
Quintus's picture

Ridiculous!  Why would the PBoC buy stupid worthless gold when they have all those wonderful (and definitely NOT devaluing) FRN's stashed away in their reserves?  What manner of fool would swap paper for Gold?

Mon, 03/29/2010 - 10:14 | Link to Comment ratava
ratava's picture

you doomsday prophets and your barbarous relic

Mon, 03/29/2010 - 10:16 | Link to Comment andy55
andy55's picture

Ok, you knew this was coming:

How do you say "gold, bitches!" in mandarin?

Mon, 03/29/2010 - 12:23 | Link to Comment trav7777
trav7777's picture

gord, abitchez

Mon, 03/29/2010 - 12:45 | Link to Comment Bam_Man
Bam_Man's picture

Gord, beeshuzz!!

Mon, 03/29/2010 - 14:48 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Beetrejuice, Beetrejuice, Beetrejuice!

Mon, 03/29/2010 - 10:17 | Link to Comment Ivanovich
Ivanovich's picture

This story (about the rebalancing of reserves) comes out every year.  Perhaps one year it will be correct, but it's like watching a re-run of Mel's Diner for the 5th time.

Mon, 03/29/2010 - 10:27 | Link to Comment tmosley
tmosley's picture

I guess you missed the release where they revealed that they had secretly doubled their gold holdings over a period of a few years.  That was released 11 months ago: http://www.businessinsider.com/china-doubles-gold-holdings-2009-4

There is nothing stopping them from doing the same now, nor is their any reason to think they have slowed down.  More than likely, they are speeding up.

Mon, 03/29/2010 - 10:33 | Link to Comment nikku
nikku's picture

Off Subject: But what happened to the article on "Capital Controls Are Here?"

Mon, 03/29/2010 - 10:36 | Link to Comment suteibu
suteibu's picture

Near the bottom of the home page.  No longer a sticky.

Mon, 03/29/2010 - 10:37 | Link to Comment RobD
RobD's picture

It's not stickied anymore so it is about 3/4 down the page.

Mon, 03/29/2010 - 10:57 | Link to Comment Peterpaul
Peterpaul's picture

As I lived in China for 6 years, let me take a stab at it.

Gold, bitches! in Mandarin would be something like:

 

Huang jin, san bamen!

 

Or literally, yellow metal [gold], 03.08 [plural].

International Women's day, a day that gets serious play in China, is celebrated on March 8th. Wags have coined the term 03/08 to refer to bitchez. Hence, san ba is an insult for a bitch.

 

Buy gold, bitchez!

Mai Huang Jin, San Ba men!

Mon, 03/29/2010 - 21:45 | Link to Comment andy55
andy55's picture

I am SO using this next time.

Mon, 03/29/2010 - 10:59 | Link to Comment John McCloy
John McCloy's picture

China is making a play at the U.S. supremacy. The indirect bids will continue to dry up. The sneaky selling of U.S. bonds will continue. The Chinese will try to make their currency more valuable with the intention of buying up our assets a few years from now in the heart of a terrible depression. China could send us straight into a depression and panic by not buying our bonds any longer.

1) Stealthily buy large quantities of gold. Perhaps some gold mines to control future supply.

2) Dump our bond and make "token" purchases

3) Work dilligently to bring up the value of the Yuan

4) Announce a gradual transition to a gold or commoditty backed currency.

This is the benefit of not having a consumer madness based economy like the U.S. They have a legion of slaves doing their labor so savings is not an issue for China and they can bring sexy back in high interest rates.

The U.S. I believe is well aware of this and concerned which is why their has been a dollar rally and gold suppresion. In my opinion this is why I believe interest rates in the U.S. will go up shortly. We are stupid but not that stupid and know the edge when we see it.

Thu, 03/24/2011 - 02:10 | Link to Comment george22
george22's picture

dear You're wrong. China is advancing because it has allowed residents of its cities access to a domestic free market. This is driving economic development faster than they ever dreamed possible. Sure, they intervene on occasion, especially in maters of international trade, but they are building a solid foundation on free market capitalism, even if they don't have personal freedoms.

The only reason they have an inflation ponzi is because they are mirroring our inflation ponzi. Once they sever that link, they will reap the benefit of a strong currency.
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biomass energy sources | renewable energy sources | renewable natural resources |

Mon, 03/29/2010 - 11:11 | Link to Comment Cookie
Cookie's picture

Forget not China thinks and plans decades ahead, unlike countries constrained by political systems that result in planning no further than the next election....5 years max.

 

Singapore is a classic, if twisted, example of this, where elections really count for nothing in a one party state.

Mon, 03/29/2010 - 12:25 | Link to Comment trav7777
trav7777's picture

Oh jeez...more of this "them Chineez Commies are just so much smarter and more clever than we are" shit.

Look, man, the CCP is a paragon of CORRUPTION and stupidity.

They run a massive inflation and mercantilist ponzi over there.

Mon, 03/29/2010 - 17:43 | Link to Comment tmosley
tmosley's picture

You're both wrong.  China is advancing because it has allowed residents of its cities access to a domestic free market.  This is driving economic development faster than they ever dreamed possible.  Sure, they intervene on occasion, especially in maters of international trade, but they are building a solid foundation on free market capitalism, even if they don't have personal freedoms.

The only reason they have an inflation ponzi is because they are mirroring our inflation ponzi.  Once they sever that link, they will reap the benefit of a strong currency.

The Chinese (and the govt of Singapore) are only smart to the extent that they BUTT OUT of the day to day economic activities of their citizens, and they refrain from imposing destructive taxes and regulations on them.  We, on the other hand, are "free" to do what we want in regards to speech, but any and all business activity is regulated out of existence.  It is so easy to open a business inside of the economic free zones in China that there are 9 businesses for every ten people.  Those entrepreneurs are driving their economy to success.  We pay lip service to such heroes here, and then we take 2/3rds of their income in taxes and wasted time (forcing them to hire compliance officers and accountants).

Mon, 03/29/2010 - 23:53 | Link to Comment Cookie
Cookie's picture

And how many years have you spent living in China/Asia???

Mon, 03/29/2010 - 11:20 | Link to Comment hamurobby
hamurobby's picture

Oh my sides hurt,     

Mai Huang Jin, San Ba men!

Down with the price of GOLD! (I need more at a cheaper price I hope)  Cash and metals will be kings, but timing will always be the key to wealth. Gold prices will be manipulated by emotion more than GS. In the long run, gold and silver will win by default.

Mon, 03/29/2010 - 12:16 | Link to Comment boiow
boiow's picture

if china has a long term gold plan i think it would probably be along these lines.

http://www.youtube.com/watch?v=YPXncTuwFIE

Mon, 03/29/2010 - 11:58 | Link to Comment Roy Bush
Roy Bush's picture

I just don't know if I believe that China will be desperately buying gold, because it presumes a lot.  First of all, will China continue to have a current account surplus in coming years as they need to import more and more products and they certainly are going to have social costs associated with building empty cities and keeping employment up.  Also, China is fully invested in US treasuries which if they just exited would cause a decline in their dollar surplus.  Converting their treasury money back into Yuan would certainly be problematic as they would increase their monetary base into an economy that is already experiencing 15% inflation rates.  

Perhaps China will accumulate some gold but the wet dream of China taking over the Gold market presumes way too much.  This comes from a person who is a huge gold bull.

Mon, 03/29/2010 - 11:58 | Link to Comment cognitis
cognitis's picture

10:41 AM Short 2 April Gold (GCJ10)@1112.4

Mon, 03/29/2010 - 12:24 | Link to Comment cognitis
cognitis's picture

11:09 AM Added 8 short GCJ10@1110.8

Mon, 03/29/2010 - 12:28 | Link to Comment cognitis
cognitis's picture

New multi-hour lows in gold!

Mon, 03/29/2010 - 13:25 | Link to Comment J K
J K's picture

According to Chart 1 in the paper, each year from 1997 through 2009, the shortfall between Chinese demand and supply is exactly 1000 tns, which seems strange. Is there a Chinese custom to only allow importation of 1000 tns annually?

Mon, 03/29/2010 - 13:31 | Link to Comment carbonmutant
carbonmutant's picture

It does be the question, "Who is selling them gold?"

Especially since banks like the IMF are being so tight fisted with their reserves.

Mon, 03/29/2010 - 13:45 | Link to Comment chumbawamba
chumbawamba's picture

PBoC’s gold holdings are currently at 1.6% of its US$2.4tn total reserves – a fraction by international standards.

Uh, yeah, that's also a fraction by mathematical standards.

?

HUANG JIN SAN BAMEN!!

PeterPaul ROCKS!!

I am Chumbawamba.

Mon, 03/29/2010 - 13:59 | Link to Comment cognitis
cognitis's picture

12:35 Covered short 10 GCJ10 @ 1108.8; now bullish on gold

Mon, 03/29/2010 - 14:45 | Link to Comment DosZap
DosZap's picture

Dupe

Mon, 03/29/2010 - 14:45 | Link to Comment DosZap
DosZap's picture

Hmmmmmmmm.......Sounds fishy.

China, (as reported a few weeks back), had the LARGEST known Gold Reserves in the world.

This was the reason they SUPPOSEDLY did not snag( WHY buy it at IMF ?Indian price), when  they stated they could get theirs out of the ground for $350.00 USD per oz.?).

The other 200 Tons from IMF(India grabbed 200 @ $1,045.00), So, did they all of a sudden just run out?.

I call bullshite.

Mon, 03/29/2010 - 15:07 | Link to Comment AnonymousAnarchist
AnonymousAnarchist's picture

Can I get a link to that report?

By official records, China is 5th (or 6th if you include the IMF). See here, here, here or here.

Mon, 03/29/2010 - 16:42 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

1) US  2) Germany  3) IMF  4) Italy  5) France  6) CHINA  7) Switzerland  8) Japan  9) Netherlands  10) Russia  11) ECB  12) Taiwan  13) Portugal  14) India  15) Venezuela

Note:  India may have moved passed Port de Gaul with their IMF purchase.  Also, Tungsten is counted in weight measurement ;)

Tue, 04/13/2010 - 05:38 | Link to Comment mark456
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