How Do the Chinese View the Gold Market?

Tyler Durden's picture




 

Via Jeff Clark of Casey Research,

How Do the Chinese View the Gold Market?

Have you ever wondered what the typical Chinese gold investor thinks about our Western ideas of gold? We read month after month about demand hitting record after record in their country – how do they view our buying habits?

Since 2007, China's demand for gold has risen 27% per year. Its share of global demand doubled in the same time frame, from 10% to 21%. And this occurred while prices were rising.

Americans are buying precious metals, no doubt. You'll see in a news item below that gold and silver ETF holdings just hit record levels. The US Mint believes that 2012 volumes will surpass those of 2011.

But let's put the differences into perspective. This chart shows how much gold various countries are buying relative to their respective GDPs.

It's widely believed that the majority of the gold flowing into Hong Kong ends up in China, so its total is probably close to double what the chart reflects. Even if none of it went to China, coin and jewelry demand is 35 times greater than the US, based on GDP.

The contrast between how our two nations can buy bullion is striking…

  • In China, you can buy gold and silver at the bank. My teller looked at me oddly when I asked.
  • Bullion is available for purchase at Chinese post offices. I wonder how my local postman would respond if I asked for a tube of silver Eagles.
  • Mints are readily accessible to retail customers. Here, I can only order proof and commemorative products from the US Mint and am forced to go to an independent dealer.
  • A new product design is manufactured every year. This being the Year of the Dragon, many bullion products are emblazoned with dragons. You can still buy last year's rabbit, and next year it will be a snake. The US has two designs, the Eagle and Buffalo; the latter was introduced in 2006 and is available only in gold (if you see a silver Buffalo, it is a "Round" manufactured by a private mint, not the US Mint).

Some will point to cultural affinity to account for the differences. There's some truth to that, though this is a much greater factor in India. Even there, gold jewelry is not viewed as a decoration or an adornment; it's a store of value. It's financial insurance in a pretty bow. In India, gold can be used as collateral, regardless of its form. It's not just an investment that they're trying to make money from; it's more important than that.

But certainly the differences can't all be attributed to culture…

You've likely heard how government leaders in Beijing have been encouraging citizens to buy gold and silver. This would be akin to seeing your local Congressman or President Obama appearing on TV and imploring you to buy some gold and silver. (Utah made gold legal tender, but it was mostly a symbolic move.)

Chinese radio and TV spots, along with newspaper ads, talk about "safeguarding your wealth" and putting "at least 5% of your savings" in precious metals. I haven't seen this here except from dealers on cable TV. Can you imagine Ben Bernanke appearing in a commercial during American Idol, encouraging you to buy gold Eagles?

No, what I hear from politicians about precious metals is nothing but the sound of crickets chirping, save Ron Paul. And the mainstream continues to claim gold is in a bubble. We've pointed it out before, but in case any of them are reading, there are two criteria for a bubble: first, a massive price increase, such as the gold price doubling in less than 7 weeks like it did in 1979-'80... which, of course, hasn't occurred in this bull market. (Yet.)

The second criterion is widespread participation on the part of the public. I don't hear celebrities and TV anchors bubbling on about the latest gold stocks. Most people I know outside Casey Research aren't talking about the great price they got on a silver Maple Leaf. Most investors I talk to say their friends, family, or co-workers aren't scrambling to snatch up gold Eagles. And the #1 reason we're not in a bubble is because Eva Longoria still hasn't asked me out on date – something she'd only do because I'm a gold analyst.

And with apologies to those of you who do know history, I think the Chinese have studied history a little better than many of us. The lessons are right in front of us, though I don't hear this kind of data very much on CNBC…

  • Morgan Stanley reports there is "no historical precedent" for an economy that exceeds a 250% debt-to-GDP ratio without experiencing some sort of financial crisis or high inflation. Total debt (public and private) in the US is 300%+ of GDP.
  • Detailed studies of government debt levels over the past 100 years show that debts have never been repaid (in original currency units) when they exceed 80% of GDP. US government debt is approaching 100% of GDP this year.
  • Peter Bernholz, a leading expert on hyperinflation, states emphatically that "hyperinflation is caused by government budget deficits." This year's US budget deficit will be about $1.3 trillion. It's expected to total $6 trillion during Obama's first four years in office.

What do we hear instead? That the country will drop into recession if current amounts of spending and outlay of benefits are reduced. I think it is quite the opposite; it will be worse if our leaders continue down this path of debt, deficit spending, and printing money.

What I'd love to see on CNBC is a spot with Doug Casey saying this: "Anyone who thinks they have any measure of financial security without owning any gold – especially in the post-2008 world – is either ignorant, naïve, foolish, or all three." I bet that'd get the airwaves buzzing.

It must seem strange to many Chinese that we continue to believe in our dollars, Treasuries, and bonds more than gold and silver. And it's not just China that would view our investing habits as peculiar. Indeed, as the above tables implies, our views on precious metals are in the minority.

My fear is that regardless of what form the fallout takes, many of my friends will be caught off guard. Probably many of yours, too. As the value of dollars continues to decay and inflation creeps closer and closer and then higher and higher, many investors will feel blindsided. Many Chinese citizens will not.

Given China's aggressive buying habits, my suspicion is that many of them will probably wonder why we didn't see what was happening all around us, why we didn't learn from history, and why we didn't better prepare.

 

Part of the reason why American dollars are losing value can be traced to Chinese actions as well: Realizing that the US government was not going to rein in its profligate spending, the Chinese have stopped investing in the US economy and are now dumping dollars. This, of course, simply adds to the US government's problems... but it provides ways for you to turn a tidy profit.

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Wed, 11/28/2012 - 22:17 | 3019209 Dealer
Dealer's picture

No risk of that.

 

Wed, 11/28/2012 - 22:27 | 3019229 dlmaniac
dlmaniac's picture

Chinese are PPT's biggest fans, especially on a day like today.

Thu, 11/29/2012 - 00:10 | 3019359 TwoShortPlanks
TwoShortPlanks's picture

Where's Australia? No-seriously, where the fuck is Australia?
Oh, I forgot, we don't need to worry, that's right, we're the 'Lucky Country', our roads are paved with the shit...Phew, what a relief...back to buying Audi's to drive kids to fucking school and watching top quality shows like 'Farmer Wants A New Gen-Y Whore For A Wife' and 'So You Think You Can Make A Fool Of Yourself'.

Ya-know, I went house hunting last weekend, and I can't tell the difference between the house price and the real estate agent's fucking mobile number.

This place is a fucking Bomb.

Get ready for www.AustralianBrideNeedsNewCountryCozThisOneIsFucked.com.au

Thu, 11/29/2012 - 04:14 | 3019660 CheapBastard
CheapBastard's picture

Prices in Australia are Uber Bubble my friend in Sydney tells me. His Mom didn't wan tto sell her house (the house she lived in for 30 years) but she said th eprices was too incedible. She sold for USD$2.8 million and moved to a rental and put half of her take into gold. She feels when house prices return to normal she may buy again.

Wed, 11/28/2012 - 22:43 | 3019263 CPL
CPL's picture

Ahh!

 

So India wins. 

Thu, 11/29/2012 - 08:16 | 3019868 LongSoupLine
LongSoupLine's picture

Tyler,

I believe a chart of tungsten imports to each those countries would put things into an even clearer perspective.

Wed, 11/28/2012 - 22:21 | 3019217 dbomb12
dbomb12's picture

"Americans are buying precious metals, no doubt. You'll see in a news item below that gold and silver ETF holdings just hit record levels. The US Mint believes that 2012 volumes will surpass those of 2011"

Since when are ETF,s considered holding gold and silver?? I will bet Gerald Celente would surely disagree with that after his encounter with MF global

Thu, 11/29/2012 - 08:50 | 3019920 lakecity55
lakecity55's picture

Do not expect the "news media" will report on any uptick in USA Citizenism PM acquisitions.

Wed, 11/28/2012 - 22:28 | 3019224 Spitzer
Spitzer's picture

Gerald Celente and Bill Flekinstien both got shafted by MF. Maybe they are practising what they preech on KWN now.

We have a long way to go if Gerald Celente is still playing on the COMEX. Either that or he is a phony

2 Bank of Nova Scotia locations sell bullion in Edmonton Canada. One is in little India, the other is downtown.

Wed, 11/28/2012 - 22:41 | 3019255 DoChenRollingBearing
DoChenRollingBearing's picture

DoChenRollingBearing is no Gerald Celente nor a Bill Fleckenstein (not even a FOFOA), but even a Bearing of small brain would know to buy physical gold only!

+ 1 Spitzer!

Thu, 11/29/2012 - 08:59 | 3019929 dbomb12
dbomb12's picture

I think he has learned a painful lesson

Wed, 11/28/2012 - 22:25 | 3019225 Chupacabra-322
Chupacabra-322's picture

Chinese wise man say, gold berry, berry good.  U.S. dollar, berry, berry bad. 

Wed, 11/28/2012 - 22:27 | 3019228 A Nanny Moose
A Nanny Moose's picture

We know how the US views the copper and nickel market. Hoard those pennies and nickels.

http://goldsilver.com/news/bid-farewell-to-pennies-and-nickels/

Gresham....it's the law.

Thu, 11/29/2012 - 04:55 | 3019687 MeelionDollerBogus
MeelionDollerBogus's picture

"Most Americans are more than ready for this overdue phase-out, viewing the millions wasted on coin production as foolishness in these tumultuous economic times. As federal budgets grow tighter and tighter, this is the only logical thing to do, but it will have some unintended consequnences on the average consumer..."

Indeed, foolishness. The sensible solution is that we be allowed to take the cost on ourselves & mint OUR OWN coins.

Wed, 11/28/2012 - 22:28 | 3019231 Yen Cross
Yen Cross's picture

 PBoC read on the markets is an obscure question.  How do you spend surplus capital on projects that were already allocated into budget?

    China will be lucky to achive 6.7% GDP next year. Tyler is all over this bull shit!  Smart Chinese investors are already diversifing over seas.

Wed, 11/28/2012 - 22:32 | 3019243 Spitzer
Spitzer's picture

Italians are buying real estate in Florida because they don't trust the local market. Americans are buying in HK because they don't trust their markets and Chinese are buying everywhere because they don't trust theirs either.

Grass is always greener...

here's an idea... Buy gold ?

Wed, 11/28/2012 - 22:51 | 3019277 Pool Shark
Pool Shark's picture

 

 

Confucius say: Grass may be greener on other side of fence,

but, It still must be mown...

Wed, 11/28/2012 - 22:54 | 3019289 Yen Cross
Yen Cross's picture

I agree with both of you... I'm just stating facts.

Thu, 11/29/2012 - 01:46 | 3019481 Bear
Bear's picture

But Gold is such a yellow asset

Thu, 11/29/2012 - 06:46 | 3019773 Snidley Whipsnae
Snidley Whipsnae's picture

"here's an idea... Buy gold ?"

Why not? Any purchase of PMs is, in effect, a short of all fiat.

If one believes that central banks will continue to hold interest rates negative by printing currencies and buying soverign bonds and one wants to take advantage of this action then what safer way than the purchase of PMs? Even if the absolute worst happens physical PMs never go to zero value but the same cannot be said of any paper asset.

The Fed (yellen iirc) recently announced that they will continue on present course until mid 2015 or longer.

Certainly there will continue to be paper PM take downs around expiry... and paper PM recoveries a few days later. So what? Unless one is into trading paper PMs this has no effect on a long term investment stategy with physical PMs.

The trend is your friend and the trend, caused by central bank actions and demand in the East, is up.

If PMs make a sudden parabolic move upward it will be time to reconsider the portfolio... Same if the central banks decide to bite the bullet and increase interest rates and reduce currency printing; ie, strengthen the fiats.

This is NOT rocket science. 

Wed, 11/28/2012 - 23:57 | 3019367 IllusionOfChoice
IllusionOfChoice's picture

Where are they going to get better yields? I thought they were just stashing their gains away from the government's long arm.

I'm not arguing about diverisfying offshore, just the why. The gold is always greener...

Wed, 11/28/2012 - 22:36 | 3019234 duo
duo's picture

when you can buy gold for 3% down and write off the interest.

When a government agency is created to help you buy gold on credit.

When HGTV has shows talking about gold ownership, and the stock market hangs on monthly gold sales numbers...

When they tell you to buy gold because they aren't making any more.

Then gold is in a bubble.

Thu, 11/29/2012 - 07:42 | 3019811 Seer
Seer's picture

"When HGTV has shows talking about gold ownership"

When HGTV has a show that tells you how to polish that gold and then flip it, THEN we can say that the cords were cut on the parachute.

Thu, 11/29/2012 - 08:31 | 3019891 ParkAveFlasher
ParkAveFlasher's picture

When the first two words out of Suzy Orman's lips are "gold, bitchez!", and the crowd goes wild, THEN you're in a bubble.

Thu, 11/29/2012 - 11:27 | 3020437 ATM
ATM's picture

Suzy Orman - the financial advisor to people without finances. I hate that lesbian cunt.

Thu, 11/29/2012 - 11:08 | 3020378 duo
duo's picture

that -1 must have been from a real estate agent

Wed, 11/28/2012 - 22:30 | 3019235 billwilson
billwilson's picture

For Chinese gold is a nice place to put wealth. Hard to track, easy to carry, will not go bankrupt ... not a bad way to have some "running away'' money. Try that with real estate or a bond or stocks. 

Gold is passed all over the place at weddings and especially engagements. When two folks get engaged .. gold gets swapped around as gifts. Then once kids are born gold is often given as a gift ... a nice way to save for the kids education. The $2000 bar I was given on our child's birth is now worth over $10,000 as he enters uni.

 

Thu, 11/29/2012 - 07:50 | 3019822 Seer
Seer's picture

"as he enters uni."

WAIT!

You're not really thinking about throw good after the bad?

The SAME people that have everyone buying up crap (and, of course, not physical PMs) want to get your wealth from you by luring you into spending it on an "education" that allows you to be in their employ?

Wed, 11/28/2012 - 22:42 | 3019254 DoChenRollingBearing
DoChenRollingBearing's picture

The Central Bank of DoChenRollingBearing has been an accumulator of gold for decades, but the Bank did not start buying in larger quantities until about 2002.  Further purchases may be expected.

Very roughly, comparing the Republic of DoChenRollingBearing and its oz of gold per unit of GDP (a graph in the article) puts our Republic in comparatively good shape compared to the countries shown.

Bitchez.

Wed, 11/28/2012 - 22:51 | 3019281 fuu
fuu's picture

Do you have an embassy?

Wed, 11/28/2012 - 22:57 | 3019294 DoChenRollingBearing
DoChenRollingBearing's picture

Av. Benavides 5495, Surco, Lima, Peru.

Bring money.

Wed, 11/28/2012 - 22:43 | 3019259 Cognitive Dissonance
Cognitive Dissonance's picture

Just goes to show how brainwashed we Americans are with regard to paper fiat. That's the scrubbing power of 40 years of the Petro Dollar.

There are gonna be lots of unhappy campers here in the USA when the almighty dollar starts to go south.

Wed, 11/28/2012 - 22:52 | 3019282 eigenvalue
eigenvalue's picture

In fact, if you have some on-the-ground source, you will know that "apartments" is a much much hotter topic than gold in China. When people talk about somebody who is rich, they say "he has XXX apartments." instead of "he has XXX ounces of gold". When Japan was experiencing its housing bubble, the Japanese gold demand was also high. But now Japan is a large seller of gold. 

Thu, 11/29/2012 - 02:39 | 3019558 TwoShortPlanks
TwoShortPlanks's picture

He has XXX apartments...LOL...yeah, I've heard that shit before...didn't turn out so well if my memory serves me well.
Maybe second time rucky?!

Wed, 11/28/2012 - 22:58 | 3019286 CPL
CPL's picture

No, Mexico hasn't accepted USD for a while starting in 2009.  I think everyone down south got the hint when the US government started doing one of Mexico's cultural and historical processes when a dictator gets in.  So your best way to protect yourself, change the laws limiting bill size.  Credit, Small bills and change only.  Travelers cheques, I've heard are hit and miss now.

http://www.bloomberg.com/news/2010-11-09/money-laundering-crackdown-cuts...

 

Los Narco's deal in gold and oil, so it sure as well wasn't the drug trade the law was aimed at limiting.

http://www.google.com/hostednews/afp/article/ALeqM5j-zgdbPaM5eqvSlxGqok3...

 

Wed, 11/28/2012 - 22:54 | 3019288 oddjob
oddjob's picture

Cue Mark Dice trying to sell a Gold Maple for $25, no takers.

http://www.youtube.com/watch?v=ndshbH3qZ6Y

Wed, 11/28/2012 - 23:10 | 3019314 Cognitive Dissonance
Cognitive Dissonance's picture

Didn't Mark just do a drive-by bullhorning of some hapless Thanksgiving Day people lined up to shop on turkey day evening?

Wed, 11/28/2012 - 23:19 | 3019324 oddjob
oddjob's picture

"I don't know if they heard me so I am going to take a swing back around"

LMAO.

Wed, 11/28/2012 - 22:56 | 3019292 Pool Shark
Pool Shark's picture

 

 

"There are gonna be lots of unhappy campers here in the USA when the almighty dollar starts to go south."

Too late:

http://www.comparegoldandsilverprices.com/wp-content/uploads/2012/01/dollar-devaluation1.png

Thu, 11/29/2012 - 07:52 | 3019830 Seer
Seer's picture

Obviously the notion of being a "paperless society" has been an abject failure.

Wed, 11/28/2012 - 22:48 | 3019272 hairball48
hairball48's picture

"My fear is that regardless of what form the fallout takes, many of my friends will be caught off guard. Probably many of yours, too. "

I talk to friends and family alike; many of whom are well educated. I send them emails with articles like this. And to my eternal frustration, 99% simply don't want to "deal with it". They say shit like, "Tell me when that crackup boom comes. I'll deal with it then."

The sheeple have no clue. A major reason imo is that the sheeple do not "get" the difference between real money(gold) and fiat money. They're ignorant. They're all Keynesians like Nixon :) whther they know it or not. They're going to learn a very harsh lesson when the bond market/US$ bubble collapses.

Gold bitchez :) Gold!

Wed, 11/28/2012 - 23:11 | 3019316 dogbreath
dogbreath's picture

well educated you say, I suppose they have pieces of paper to prove that

Wed, 11/28/2012 - 23:57 | 3019365 Snidley Whipsnae
Snidley Whipsnae's picture

hairball...

No sense wasting your time trying to sway people. After the first attempt let it go. You have tried and to persist will only piss them off and you might make enemies out of non-enemies.

In addition... What happens when they lose their asses with paper? They are aware that you have physical and they are going to resent it. Hell, it might be a good idea to tell them you have lost your PMs in a boating misshap and are now into etfs. Otherwise, if the gov offers rewards for ratting on PM phys owners you will definitely be ratted on. Luckily, I lost my PMs in a boating accident and need not worry. Good luck.

 

Thu, 11/29/2012 - 00:05 | 3019372 DoChenRollingBearing
DoChenRollingBearing's picture

Wise words Snidley, + 1

Thu, 11/29/2012 - 00:05 | 3019378 IllusionOfChoice
IllusionOfChoice's picture

FWIW after talking my parents through the situation for a year, they finally dipped a toe in. After seeing a 10% gain, they doubled their stake without any prompting from me. 

Now to get them into physical... Baby steps required I guess.

Tue, 12/11/2012 - 06:15 | 3051351 e-recep
e-recep's picture

hell, i lost my bullions in a zeppelin accident.

Thu, 11/29/2012 - 01:24 | 3019458 dinastar2
dinastar2's picture

When the T bonds / US $ will crash the US govt will prohibit the holding and exchanging of physical gold on its territory for the very simple reason that the Govt will NEED your gold like a junkie will NEED its heroin shoot.So your gold will be outlawed , and cash banknotes too.All transactions will be in bank wires and plastic credit card.So the Govt will be able to register any movt.in your bank account coming from stashed away unknown ressources like gold. The elimination of cash banknotes as a normal mean of payement is well under way in Europe .In Italy the govt prohibits the use of cash above one thousand euros.Then will come the prohibition of gold.When push comes to shove there is no more individual rights, and democracy is a parody.Listen well to the heavy hitters who propose Singapore as the new model of authoritarian regime.If you want to hold gold you'll need to hold a gun too and stay on the run. 

Thu, 11/29/2012 - 07:09 | 3019784 Snidley Whipsnae
Snidley Whipsnae's picture

"When the T bonds / US $ will crash the US govt will prohibit the holding and exchanging of physical gold on its territory"

There is NO GOVERNMENT TERRITORY... Only territory belonging to the citizens of America.

"the Govt will NEED your gold like a junkie will NEED its heroin shoot.So your gold will be outlawed"

Simply because an entity NEEDS something does not mean that they will GET it. Perhaps they will get a portion of it but not all. Besides, there is not enough gold in the hands of American individuals to bail out the US Gov debt without a huge upward revaluation of gold... which is the last thing that central banks/govs want to happen.

"All transactions will be in bank wires and plastic credit card"

This would cause the underground economy to increase by multiples of it's current size... which is already considerable when considering all the swap meets and farmers mkts in current operation. An example: Near me there is an every Wed swap meet at a county fair grounds that has over 3,000 vendors and tens of thousands of attendees/buyers... not to mention all the smaller swap meets in this area. NONE of the vendors accept credit cards and there are many ATMs on site.

"If you want to hold gold you'll need to hold a gun too and stay on the run."

Paranoia will destroy ya... My chances of being hurt/killed are far greater from an idiot talking on a cell phone while driving or the idiot that drives 90 mph on bald tires and takes out multiple vehicles when a tire blows out. I suspect that tptb will attempt to outlaw guns before they attempt to outlaw gold. It only makes sense from their perspective although I am against both actions.

 

 

 

Thu, 11/29/2012 - 07:47 | 3019818 Tango in the Blight
Tango in the Blight's picture

Next year all cash transactions over 50 euros are outlawed in Italy!

http://www.silverdoctors.com/italy-to-ban-cash-transactions-over-e50-in-...

 

Thu, 11/29/2012 - 08:42 | 3019911 lakecity55
lakecity55's picture

Likely.

But, there will be a black market.

I know lots of Au escaped Premier Roosevelt's Decree in '33.

Over the short term you would have to stash it. Then, you could use it.

Then, there is Ag. Unless O'Mugabe wants more silverware in the Muslim House, it may be safe.

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