It now looks for sure that China, in 2009, overtook India as the world’s largest gold consumer.? The ‘Middle Kingdom’ had already surpassed South Africa as the world’s largest gold miner a year earlier.

Latest figures out of Beijing suggest that gold demand in China grew by
an estimated 13.8% to around 450 tons in 2009, while India’s estimated
consumption last year is put at only around 210 tonnes – about half its
consumption level in 2008. Much of the disparity last year was due to a
decline in Indian buying as purchasers were put off by higher prices.

This year initial projections suggest that although Indian demand may
well recover to near 2008 levels, Chinese buying will keep it well
ahead – but then projections made in January are prone to tempt fate.?
Even so, the reported pre-Chinese New Year surge in gold buying by the
general public in China could mean this year’s disparity in the figures
becomes even wider.

On the production side, China’s output reached a new high of 282.5
tonnes for the first 11 months of the year suggesting an overall total
of around 310 tonnes for the full year, assuming November’s monthly
output figure of just short of 28 tonnes was maintained.

What does remain to be seen though is how much of this assumed 310
tonnes will have been picked up by the general public, and how much by
the State, and the suggestion is that the State may well have retained
it all, which means the public is buying imported gold. Although
Chinese reporting of State holdings can be obscure to say the least as
it differs depending on which government entity technically holds the
gold.? China has in the past not reported official gold reserve growth
until the gold is physically moved into Central Bank coffers – if then!

This all makes the estimates of non Central Bank gold supply and demand
virtually impossible to assess accurately (if indeed this has ever been
really possible) given the unknown of where the world’s largest
producer’s gold is actually going -? depending on what statistics the
Chinese are prepared to release to the outside world.? Digging too
deeply locally could end one in jail, as Rio Tinto’s iron ore pricing
negotiators have found out to their cost!

What is apparent though, and this has been confirmed by various
statements and anecdotal evidence, is that the Chinese government and
Central Bank is wary of the declining value of the dollar, given its
enormous dollar reserves, and is feverishly pushing state entities into
diversifying its reserve base – hence the suggestion that all China’s
newly mined gold may well be sitting in government coffers – and also
why China doesn’t appear to have stepped in to buy IMF gold.? It can
happily expand its gold reserves surreptitiously which doesn’t rock the
markets too much.

If, for example, China had bought the IMF gold on offer, the signal
this would have sent to the markets could have led to a huge gold price
surge and a consequent devaluation of the dollar and, given China’s
enormous dollar holdings, this doesn’t make economic sense.? Far rather
buy the gold under the table from its own producers and hide it from
the world at large until such a time it may be economically expedient
to announce it.

Given the Chinese populace is taking its lead from the government and,
apparently, buying gold as an ultimate insurance policy either as
jewellery or bullion, should the price start slipping back
substantially it would be easy for China to announce it has taken
another couple of hundred tonnes into its reserves and the market would
bounce back again, so protecting its’ citizens investments.? This is
pure speculation of course, but does seem a logical way of looking at
Chinese economic policy with respect to gold and its own public.

Source: Economic Times

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