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As expected, there was strong gold consumption associated with the Chinese New Year celebrations. But will the Year of the Dragon be one of sustained strong demand from China?
By Michelle Smith–Exclusive to Gold Investing News
A surge in gold demand associated with the Chinese New Year was largely anticipated and reports suggest that there was certainly no disappointment. But, the week of celebrations has ended and the Year of the Dragon is underway. With it, January is set to conclude with gold up 10 percent, raising the question– will Chinese gold demand continue to be a driver for the metal’s strong performance?
In November, the sales value of gold, silver and jewelry, was 9.9 percentage points lower than in the previous month, reported Shen Danyang, spokesperson for China’s Ministry of Commerce. He added that the growth rate of sales in this category was the lowest since 2010.
However, in December, the market responded positively to news of a record 102,779 kg of gold imported to China from Hong Kong in November, marking the fifth consecutive month of increases.
The Chinese new year followed with exceptionally strong demand from gold consumers. Sales at two of Beijing’s top gold retailers were reported at 600 million yuan (+$95 million), which is more than a 50 percent increase over sales seen during the festive period in 2011.
But were the strong import figures and the raging gold appetite seen in January merely representative of seasonal demand? Some believe so.
Normally, following the holiday, both demand and prices cool off. CME Group, was one with such expectations, saying that though gold demand was healthy during the celebration, it should now slow. But to the contrary, CME noted that there are reports of an increase in demand.
In the third quarter last year, the World Gold Council reported that China’s gold jewelry demand was up 13 percent year on year and investment demand saw gold bars and coins up 24 percent over the same period.
Some analysts believe China’s gold appetite isn’t at all seasonal, but well supported by economic conditions. They point to the state of the US and the Eurozone. They also highlight the fact that the Chinese are faced with negative real interest rates, a troubled real estate market, and the risk of inflation eroding their savings. It is believed that these factors will make gold an even more attractive store of wealth among people who already are fans of the metal.
In addition to the Chinese government encouraging its citizens to invest in gold, the metal is becoming more accessible due to growing incomes. It is being observed that purchases of the metal are occurring among a much broader spectrum of the population than in the past.
Accessibility to gold is also aided by efforts to provide a broader range of Chinese with alternate investment options.
In 2010, the Industrial and Commercial Bank of China (ICBC) introduced a product which allows investors to buy as little as one gram of gold. As of November there was reportedly 2.33 million of these old investors and 22 tons of gold being held by the ICBC to back these accounts.
The Agriculture Bank of China, reported that an investment product it launched in September had attracted over 70,000 investors committing to buy at least a gram of gold per month.
The government too is being urged to get more gold. Zhang Jianhua, director of research bureau affiliated with People’s Bank of China, encouraged the government to use gold to diversify its foreign reserves. “Gold is the only safe haven for risk adverse investors,” he said.
In December, a third of China’s $3.2 trillion in foreign reserves was in US bonds and 20 percent in Eurozone debt, but the value of it’s gold amounted to less than 2 percent. According to a report posted on the Ministry of Commerce the government not only committed to diversification but had also cut US Treasuries by $1.2 billion in October, a record low.