Meanwhile, Russia buys gold for 9th straight month as central-bank trend supports bullion
Perhaps the single biggest bullish driver behind gold keeps growing stronger: Chinese demand for physical metal. It could hit a record 1,000 tonnes this year, the World Gold Council announced Thursday, "which means it would overtake India as the world's biggest bullion consumer.""China will probably be the world's biggest gold consumer this year for the first time on an annual basis," the WGC's Marcus Grubb said. "That will be driven by both jewelry and investment demand. Jewelry will be the biggest overall demand segment, but investment will grow fastest."
Shanghai gold trade booming
Every day it seems like a new statistic, field report, or analysis comes out to support the council's prediction. For example, physical deliveries from the Shanghai Gold Exchange in the first half of 2013 exceeded total deliveries for all of last year, 1,198 tonnes versus 1,140 tonnes, exchange data showed, while premiums over spot prices rose above $20 an ounce.
Also, "the sale of gold and silver jewelry rose in the markets in Shanghai during the first half of the year," Diamond Worldreported. "The increase was of 57.7 percent from the same period last year, reports say. Also, the total sale of gold and silver jewelry in the country during the six months rose 29.7 percent ($25.7 billion) from the same period last year."
"Paper" gold also gaining popularity
And despite reports that China's newly introduced gold ETFs got off to a slow start, "Asian investors are keeping faith in gold funds, taking in their stride a stunning plunge in the price of the metal over the past few months, as paper gold looks to be finding a stronger foothold in the region," Reuters reported.
"In sharp contrast to Western markets, where investors made a beeline to exit gold fund investments, a net $33.5 million was pumped into Asian gold and precious metals miners' funds in the three months to June, according to data from fund tracker Lipper and Reuters calculations."
"Gold is not just considered an investment tool in Asia, it is also seen as a luxury. So when the price drops, people tend to accumulate more," said Tanawat Roongtanapirom, a fund manager at Kasikorn Asset Management, which runs the $591 million K Gold, Asia's biggest gold fund. "The trend of shifting from physical to gold ETFs is just beginning," said Kasikorn's Roongtanapirom.
Russia "ramping up" its strategic reserves
China's focus on gold also exists on the sovereign level, as rumors of Beijing backing its yuan currency with gold refuse to die out. And China has a major ally in this endeavor: Russia Beyond the Headlines (RBTH) is reporting that "China is less than enthusiastic about the dollar's status as the main global reserve currency," while "Russia is not happy about the dollar's ubiquitous role, either. ... The two emerging economies, Russia and China, have now pooled their efforts in order to make their dreams of a stronger rouble and yuan come true."
The two nations have notably been forging currency-convertibility agreements across the globe. And that's not all. "China and Russia will need to back their currencies with gold." China's demand for gold has already been demonstrated, but "Russia has also been ramping up its gold and currency reserves in the past four years," RBTH wrote.
Central banks keep buying tons of bullion
That supposition is borne out in fresh data from the International Monetary Fund, which announced that Russia expanded it gold reserves for a ninth straight month in June.
Russian holdings, the seventh-largest by country, climbed 0.3 metric tons to 996.4 tons, though it was the smallest gain since Moscow starting increasing its reserves in October.
After decades of central banks unloading gold onto the market, this new buying trend is a huge support factor for prices by shrinking available supplies. Several other nationsjoined Russia in buying bullion in June. Kazakhstan boosted its gold by 1.4 tonnes to a total of 130.9 tonnes. In addition, Azerbaijan added by 2 tonnes to a total of 8 tonnes, while Kyrgyzstan increased by less than 0.1 tonnes to 3.3 tonnes. Thus, gold remains a go-to asset as emerging nations strive to diversify away from the dollar.
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