-- Posted Sunday, 22 May 2011 | | Disqus

China became the largest market in the world for gold bullion and coins in the first quarter of 2011, ahead of India, with the Chinese buying more than 200 tonnes of gold in the first four months, almost the same as the 240 tonnes bought in the whole of 2010, itself four times up on 2009.

This data was released by the World Gold Council last week. April was a particularly busy month for gold purchases by China as they topped the entire first quarter’s 93.5 tonnes. But that said the first quarter purchases were up 55 per cent from the previous quarter and more than double the level of Q1 a year ago.

Price support

The huge surge in demand for physical gold from China is clearly the main factor underpinning rising prices. Eastern demand is replacing any selling of gold in the West, for example by George Soros who appears to be switching to gold equities instead (click here).

If the trend established in the first quarter continues then China will replace India as the largest overall consumer of gold. The move comes after a deregulation of the Chinese gold market to encourage the holding of gold, and also something similar for silver, which has resulted in a surge in specialist shops and banks importing precious metals.

Why are the Chinese authorities doing this? It is quite painfully obvious. This is a hedge against a weakening US dollar and inflation. Gold is the real money, not the paper that China is forced to buy to support its export sector.

Price going up!

China not only knows this but is actually doing something about it. The implications for the gold price are also obvious.

Meanwhile, Bloomberg reports today that the Shanghai Gold Exchange is to start exchange traded funds for precious metals which are not currently available in China. Think what gold and silver ETFs have meant for prices over recent years in the West, and think what that might mean in the East!

-- Posted Sunday, 22 May 2011 | Digg This Article

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 www.ameinfo.com, 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 www.ameinfo.com 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 www.arabianmoney.net 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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