China Continues to be the Prime Contender in Gold Markets

by on April 6, 2014 4:59 pm BST

Chinese demand in gold has seen a large transformation over the last few years. As Western central banks continue to artificially suppress the gold market, China has dramatically increased their reserves. According to goldmoney.com’s Alasdair Macleod, China is keeping under wraps exactly how much gold the People’s Bank of China (PBOC) is buying and hoarding.

“I have been revisiting estimates of the quantities of gold being absorbed by China, and yet again I have had to revise them upwards. Analysis of the detail discovered in historic information in the context of China’s gold strategy has allowed me for the first time to make reasonable estimates of vaulted gold, comprised of gold accounts at commercial banks, mine output and scrap. There is also compelling evidence mine output and scrap are being accumulated by the government in its own vaults, and not being delivered to satisfy public demand,” said Macleod. He also pointed out that the Chinese government is happy to accept that current (manipulated?) prices are primarily focused on the retail end of gold demand; although, the price of gold does not particularly track that well, either. Ever wonder how central banks can buy metric tons, or refineries add third and fourth shift to keep up with demand, and there is no movement in the gold market?

Macleod has three key idea on why exactly China is the top contender in the international gold market:

1. The Chinese government is the United States’ largest debt holder. With the volatility of the dollar and substantial geo-political risk, China can swap the value of treasuries into gold as it sees fit.

2. China is anticipating the amount of gold in Western gold vaults, while seeing that gold is a weak spot for Western central banks with monetary reserves vastly overstated.

3. China supports citizens to invest and buy gold. This limits China’s need to buy dollars to control the yuan exchange rate. It also helps protect the middle class versus currency instability, which is becoming a great worry in today’s global economy.

Until the gold price slaughter in 2013, Chinese demand for the shiny metal began to slump, but everyone loves discounted prices. Gold still remains much lower than a year ago, and gold deliveries (seen as demand) at the Shanghai Gold Exchange (SGE) are continuing to remain elevated.