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Chinese to Buy Even More Gold in the Year of the Tiger

By: Peter Cooper, Arabian Money

-- Posted Monday, 15 February 2010 | Digg This ArticleDigg It! | | Source:

China has only 1.6 per cent of its foreign currency reserves held in gold. But between 2003 and 2009 Chinese households bought almost 1,800 tonnes of the yellow metal, almost four times the purchases of the People’s Bank of China.


The Chinese Year of the Tiger which has just started is reckoned to be an auspicious year for gold purchases. Superstitions aside the listing of gold futures on the Shanghai Futures Exchange is also an encouraging development.


Bond buying falls


US treasury bond purchases by China are also falling: from half of new issuance in 2006 to 20 per cent in 2008 to an estimated five per cent last year. No wonder some international banks think bond yields will have to rise substantially this year.


Clearly the focus has been on stimulating the Chinese domestic market in 2009 with a stimulus in the first half equivalent to half of national GDP. But no other nation has a more immediate danger from surging inflation. Recent agricultural price rises are far more worrying than a surge in high-end residential property prices.


For China is a victim of its own successful stimulus. Money supply increases of 30 per cent have never been tried before on this scale. But less ambitious money supply boosts have almost always resulted in inflation in the past. China is no different.


It is therefore to be expected that the Chinese people will continue to buy the one money that will protect them against inflation in 2010, and last year China surpassed India as the world’s top private gold consumer. The logic of a currency whose supply cannot be expanded is clear for investors who are very wise to be worried about domestic inflation.


Biggest gold producer


Thankfully China is also the world’s biggest gold producer, ahead of South Africa and Australia, so the metal to supply this rising demand is available locally.


However, for gold prices this has to be good news in 2010. It may well be that a global stock market correction in the first half rallies the dollar to the detriment of gold prices. But this will be just another buying opportunity in this gold market.


You need buyers, of course, to make a market and there seem to be a lot of them in China right now.

-- Posted Monday, 15 February 2010 | Digg This Article | Source:

About Peter Cooper:
Oxford University educated financial journalist Peter Cooper found himself made redundant by Emap plc in London in the mid-1990s and decided to rebuild his career in Dubai as launch editor of the pioneering magazine Gulf Business. He returned briefly to London in 1999 to complete his first book, a history of the Bovis construction group.

Then in 2000 he went back to Dubai to become an Internet entrepreneur, just as the dot-com market crashed. But he stumbled across the opportunity to become a partner in, which later became the Middle East's leading English language business news website.

Over the course of the next seven years he had a ringside seat as editor-in-chief writing about the remarkable transformation of Dubai into a global business and financial hub city. At the same time prospered and was sold in 2006 to Emap plc for $27 million, completing the career circle back to where it began a decade earlier.

He remains a lively commentator and columnist as a freelance journalist based in Dubai and travels extensively each summer with his wife Svetlana. His financial blog is attracting increasing attention with its focus on investment in gold and silver as a means of prospering during a time of great consumer price inflation and asset price deflation.

Order my book online from this link


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