Looks like China is preparing for the yuan/renminbi to replace the U.S. dollar as the world's reserve currency.
China Overtakes India as Top Gold Consumer
Feb. 18, 2014 1:00 a.m. ET
China is seeing powerful demand for gold. Above, customers browse gold jewelry at a Hong Kong store. Bloomberg News
Gold's wild ride has shaken investors. But in China, buyers just keep stepping up to the plate.
Chinese demand for gold bars, coins and jewelry soared by 32% to record levels in 2013, even as the price of gold slumped 28%.
The surge in buying saw China overtake India as the world's top consumer of physical gold, importing 1,066 metric tons of the metal to India's 975 metric tons in 2013, according to new data from the World Gold Council. (A metric ton is equal to about 2,240 pounds.)
"When prices drop, there are always be buyers," said Jiang Shu, senior gold analyst at Industrial Bank in Shanghai.
In India, consumption increased by 13% but further growth was curbed by import restrictions aimed at narrowing the country's current-account deficit. The council estimates around 200 metric tons was smuggled into the country.
China's lead over India as the world's top importer is likely to be sustained, said Marcus Grubb, the council's managing director of investment strategy.
"China is 10 years behind India in terms of deregulation and growth of demand," Mr. Grubb said. "Given last year was such a strong year, it will be hard to equal that again in 2014, [but] the stock of gold in China is less than half of that in India, so we think there's plenty more room to grow."
For decades, Beijing's restrictions on the type of gold individuals could own kept China's gold market under wraps. Private ownership of gold bars and coins was prohibited until 2002. But the liberalization of China's gold market, along with rising affluence, prompted people like Gao Qi to start buying gold regularly.
Mr. Gao, a 31-year-old manager at a car company, said he buys two 50-gram gold bars each year to supplement his investment portfolio. "You're supposed to hold some gold in case something happens," Mr. Gao said.
Fears about the slowing Chinese economy, a potential property bubble and fragile financial system have spurred buying, especially as retail gold buyers in China have few other appealing investment options. The Shanghai Composite Index is down nearly 40% in the past four years amid worries about weak governance and a raft of poorly performing initial public offerings.
"I consider gold [bars] a storage of value and it makes me feel safe," said Kiki Fang, 26, a human-resources worker at a Shanghai consulting firm.
Ms. Fang, who bought a couple of 50-gram gold bars last year and plans to buy more this year, said she buys gold, too, because of concern about a "bubble in [China's] real-estate market."
She isn't alone. Huang Jiwei, an engineer at a Shanghai car company, also bought some gold bars to diversify his investments. "No one knows what will happen to the property market, so I might as well put my money into gold," said Mr. Huang.
The bars many Chinese buyers buy are far smaller than those in the West, where investors are usually offered bars weighing 1,000 grams, or 32.15 troy ounces. Standard gold bars held as gold reserves by central banks are 400 troy ounces each.
Industrial & Commercial Bank of China, China's largest bank by assets, said trading volume in its precious-metals business in the first three quarters of 2013 increased 22% year over year to 1.07 trillion yuan ($176.6 billion), with sales of gold bars at their highest level in four years.
The sharp rise in Chinese consumption partially offset a steep fall in gold demand elsewhere. While global sales of gold bars, coins and jewelry grew by 21%, gold-backed exchange-traded funds liquidated 51% of their gold holdings, putting 800 metric tons of the metal back on the market. The result was a net year-over-year decline in global gold demand of 15%, according to the gold council report.
Last year's price slump contributed to a 2% fall in global gold supply, according to the report from the council, which is funded by mining companies. The supply of gold from mining companies increased 5% last year, but gold recyclers held back bringing their metal to market at depressed prices.
An expected withdrawal of economic stimulus largely drove gold's fall in 2013. The Federal Reserve's policy of keeping interest rates low had helped send investors to the inflation hedge. This year, though, concerns about the U.S. economy have pushed the gold price up 10%.
—Laura Clarke and Yue Li
China Overtakes India as Top Gold Consumer
Feb. 18, 2014 1:00 a.m. ET
China is seeing powerful demand for gold. Above, customers browse gold jewelry at a Hong Kong store. Bloomberg News
Gold's wild ride has shaken investors. But in China, buyers just keep stepping up to the plate.
Chinese demand for gold bars, coins and jewelry soared by 32% to record levels in 2013, even as the price of gold slumped 28%.
The surge in buying saw China overtake India as the world's top consumer of physical gold, importing 1,066 metric tons of the metal to India's 975 metric tons in 2013, according to new data from the World Gold Council. (A metric ton is equal to about 2,240 pounds.)
"When prices drop, there are always be buyers," said Jiang Shu, senior gold analyst at Industrial Bank in Shanghai.
In India, consumption increased by 13% but further growth was curbed by import restrictions aimed at narrowing the country's current-account deficit. The council estimates around 200 metric tons was smuggled into the country.
China's lead over India as the world's top importer is likely to be sustained, said Marcus Grubb, the council's managing director of investment strategy.
"China is 10 years behind India in terms of deregulation and growth of demand," Mr. Grubb said. "Given last year was such a strong year, it will be hard to equal that again in 2014, [but] the stock of gold in China is less than half of that in India, so we think there's plenty more room to grow."
For decades, Beijing's restrictions on the type of gold individuals could own kept China's gold market under wraps. Private ownership of gold bars and coins was prohibited until 2002. But the liberalization of China's gold market, along with rising affluence, prompted people like Gao Qi to start buying gold regularly.
Mr. Gao, a 31-year-old manager at a car company, said he buys two 50-gram gold bars each year to supplement his investment portfolio. "You're supposed to hold some gold in case something happens," Mr. Gao said.
Fears about the slowing Chinese economy, a potential property bubble and fragile financial system have spurred buying, especially as retail gold buyers in China have few other appealing investment options. The Shanghai Composite Index is down nearly 40% in the past four years amid worries about weak governance and a raft of poorly performing initial public offerings.
"I consider gold [bars] a storage of value and it makes me feel safe," said Kiki Fang, 26, a human-resources worker at a Shanghai consulting firm.
Ms. Fang, who bought a couple of 50-gram gold bars last year and plans to buy more this year, said she buys gold, too, because of concern about a "bubble in [China's] real-estate market."
She isn't alone. Huang Jiwei, an engineer at a Shanghai car company, also bought some gold bars to diversify his investments. "No one knows what will happen to the property market, so I might as well put my money into gold," said Mr. Huang.
The bars many Chinese buyers buy are far smaller than those in the West, where investors are usually offered bars weighing 1,000 grams, or 32.15 troy ounces. Standard gold bars held as gold reserves by central banks are 400 troy ounces each.
Industrial & Commercial Bank of China, China's largest bank by assets, said trading volume in its precious-metals business in the first three quarters of 2013 increased 22% year over year to 1.07 trillion yuan ($176.6 billion), with sales of gold bars at their highest level in four years.
The sharp rise in Chinese consumption partially offset a steep fall in gold demand elsewhere. While global sales of gold bars, coins and jewelry grew by 21%, gold-backed exchange-traded funds liquidated 51% of their gold holdings, putting 800 metric tons of the metal back on the market. The result was a net year-over-year decline in global gold demand of 15%, according to the gold council report.
Last year's price slump contributed to a 2% fall in global gold supply, according to the report from the council, which is funded by mining companies. The supply of gold from mining companies increased 5% last year, but gold recyclers held back bringing their metal to market at depressed prices.
An expected withdrawal of economic stimulus largely drove gold's fall in 2013. The Federal Reserve's policy of keeping interest rates low had helped send investors to the inflation hedge. This year, though, concerns about the U.S. economy have pushed the gold price up 10%.
—Laura Clarke and Yue Li
