The Chinese Gold Market
By Simon Black · 2 comments
I’ve
been spending a lot of time this week talking to my sources in China,
one of whom is inside one of the country’s sovereign wealth funds
(SWF).
He could not discuss the details of the Rio Tinto bribery scandal,
but indicated that it was far more about saving face and establishing
position than anything else.
He also indicated that the SWF analysts were working around the
clock trying to put deals together… for China it’s a race against the
clock for how fast they can convert their $2 trillion in US dollar
holdings into strategic assets– namely oil and gold.
At today’s deflated prices, putting together a really good billion
dollar deal is a difficult thing to do. Putting together 2,000 of them
is impossible. Doing it before the dollar collapses? Not a Chinaman’s
chance. And they know it.
So as a hedge, the government appears to be pumping up demand for
gold and silver among the public, possibly preparing them for an
imminent dollar decline.
I asked Christine, my China insider you heard from last week, to
shed some light on the Chinese gold market to provide some clarity:
It’s funny you ask, I just got off the phone with one of the key executives at
the Shanghai Gold Exchange.
You know, for the past 50 years, the Chinese government has
controlled the distribution of all types of gold. They dictated prices
and forbade citizens from owning or trading any type of precious metal.
It didn’t matter if you were an individual investor, a gold miner or a
processor…it was state asset.
In 1959, if you were caught with gold in your possession you were
thrown in jail. The result of this policy has been widespread
indifference and very little understanding for precious metals as asset
class or sound money.
The government is now taking radical measures to change that.
Fast forward to 2009– the FIRST year that the Chinese public is
allowed to own physical gold or silver. The government is now trying
to drum “gold/silver as an investment” into their heads at every corner.
Banking products, investment products, checking accounts linked to
gold. In fact, Chinese have more precious metal investment options
than Americans, and the statistics are alarming:
In 1950, China had next to nothing in gold reserves. Today they rank
10th globally, and they are frantically mining for more on their own
soil.
For the past half a century, the Chinese had the lowest per capita
consumption of gold in the world. Next year, Chinese gold demand will
likely surpass that of India.
This year, the government banned silver from being exported… and by
July, it was being promoted as an “investment” to the Chinese public on
the 6 o’clock news.
You do the math– how does that affect global demand if just 10% of Chinese
begin to perceive silver as an investment?
Will the Chinese turn into goldbugs overnight? No. Over the next 5 years?
Probably, yes.
I like your long-term silver option strategy for this reason. Even
the smallest shift in Chinese investor/consumer preferences can
dramatically alter global demand and commodity prices.
From what I’m seeing from the ground, the Chinese government is
engaging in one of the most explosive financial marketing campaigns in
history. Instead of Maoist propaganda, though, they are attempting to
change the entire perception of gold/silver in the Chinese public.
Simply put, the Chinese government is trying to trigger a national gold
craze…and it’s working.
The Chinese public now has gold trading platforms on steroids.
You can buy silver bullion or gold bars at any Chinese bank in four
different sizes. Wealth management products tied to gold are
skyrocketing in popularity, and the public can now instantly buy, sell,
and trade gold 24 hours a day in five different forms with different
eight types of services.
Also, for the first time in history, Chinese investors can even
trade gold abroad (in London) with the swipe of a “Lucky Gold” card.
I can’t even get Bank of America to open a foreign currency account.
http://www.sovereignman.com/finance/the-chinese-gold-market/
-------------- next part --------------
An HTML attachment was scrubbed...
URL: /pipermail/attachments/20090814/4222bbde/attachment.html
_______________________________________________
Biofuel mailing list
Biofuel@sustainablelists.org
http://sustainablelists.org/mailman/listinfo/sustainablelorgbiofuel
Biofuel at Journey to Forever:
http://journeytoforever.org/biofuel.html
Search the combined Biofuel and Biofuels-biz list archives (70,000 messages):
http://www.mail-archive.com/biofuel@sustainablelists.org/
