China officially has gold fever. Chinese demand for gold in 2011 is being called “explosive” and “voracious”. China imported five times as much gold in 2010 as it did in 2009, and this year gold sales in China are projected to easily set another new all-time record. China produces more gold than any other nation on the planet and last year the Chinese consumed more than twice as much gold as Americans did. Yes, the Chinese are officially in love with gold. But why is that? Is it because they are concerned about inflation? Is it because the Chinese are losing faith in paper currencies? Are the Chinese looking to diversify? Has gold become a “trendy” status symbol in China? Or is something else going on here?
Whatever the reason, China sure is accumulating a whole lot of gold. In fact, China now gobbles up 25 percent of all global production. The Chinese government is steadily increasing their stockpiles of gold, and the Chinese public seems to be absolutely in love with gold right now. At this point, financial authorities are projecting that Chinese demand for gold will continue increasing at a very brisk pace for quite a few years to come.
Most Americans simply don’t understand how big of a player China has become when it comes to precious metals. China is not only gobbling up gold, it is also voraciously buying up silver as well. The truth is that there seems to be a lot more interest in precious metals over in Asia right now than there is in either North America or Europe.
The following are 10 facts about gold fever in China that may surprise you….
#1 According to the World Gold Council, China consumed 579.5 tons of gold during 2010. The United States only consumed 233.3 tons.
#2 China has been importing gold at a feverish pace. In fact, China imported five times as much gold in 2010 as it did during 2009.
#3 The Chinese appetite for gold only seems to be accelerating in 2011. The Industrial and Commercial Bank of China sold approximately 15 tons of physical gold in 2010. That was a huge amount. But during the month of January alone, the bank sold approximately 7 tons of physical gold. The growth in the demand for gold in 2011 is being called “explosive” by executives at the bank.
#4 Chinese demand for gold has now risen to approximately 25% of total global production.
#5 Investment demand for gold in China soared by a whopping 70 percent during 2010.
#6 It is being projected that China’s gold investment demand will grow another 40 to 50 percent during 2011.
#7 Consumers in China and India now account for more than half of all global demand for gold jewelry and gold coins.
#8 Chinese households have purchased almost half as much gold since mid-2007 as all the investors in the West combined.
#9 On the Shanghai Gold Exchange, trading volume soared 43 percent during the first 10 months of 2010.
#10 China replaced South Africa as the number one gold producer in the world back in 2007. China’s gold mines produced an all-time record 340 tons of gold last year.
So what does China plan to do with all of the gold that it is accumulating? The truth is that nobody knows for sure, and that includes the head of the World Gold Council….
In the end, the Chinese may just be trying to hedge against inflation or they may just be trying to diversify their investments.
But there are other possibilities.
The truth is that most of our leaders in the western world are making plans based on what is best for today, while in China they are making plans based on what is going to happen five, ten or even twenty years down the road.
For many years, China had been rapidly accumulating U.S. Treasuries. Well, that era appears to be over. China has been keeping their stockpile of U.S. Treasuries fairly stable for quite a while now. In fact, over the past year Chinese holdings of U.S. Treasuries dipped slightly to $892 billion. What China has been doing is they have been getting rid of longer-term Treasuries and replacing them with shorter-term Treasuries. Now China does not hold many Treasuries that have a maturity of greater than five years.
Instead of accumulating U.S. Treasuries, these days China has been diversifying greatly. There has been much more of a focus on hard assets.
If the world is indeed heading for a financial implosion, then it certainly does make a lot of sense for China to be accumulating gold, silver and other hard assets. When things go sour you don’t want to be left holding a whole lot of paper.
The Chinese have shown themselves to be incredibly shrewd when it comes to financial matters. There have been times in recent years when it has appeared that the Chinese have been playing “economic chess” while the United States has been playing “economic checkers”. China is now the second largest economy in the world and their ascent on the world stage has been absolutely stunning.
So when China starts hoarding gold like there is no tomorrow, perhaps we should all start paying attention. Perhaps they know some things that the rest of us don’t. Or perhaps they can just see some things that the rest of us simply don’t want to see.
In any event, it is undeniable that China’s appetite for gold is stronger than ever and that it continues to grow. Nobody knows for sure what that is going to mean for the price of gold in 2011, but it should be very interesting to watch.