Asian Nation Reports Both Record Mining Output and Metal Consumption
It should come as no surprise, given the constant reports streaming out of Asia, but China once again confirmed its No. 1 standing as both the world’s top gold miner and the biggest consumer of the yellow metal.
“China’s output and consumption of gold rose to record levels last year, entrenching the country’s position as the world’s largest producer and an opportunistic buyer of bargain-price commodities,” The Wall Street Journal reported.
“Chinese consumers bought 1,176.4 metric tons of gold in 2013, a 41% rise from a year earlier, the China Gold Association said in a statement Monday. It is the first time Chinese consumption has crossed 1,000 tons.”
On the mining front: “China also notched a record for gold output in 2013, with production increasing 6.2% from 2012 to 428.16 tons, the association said. China has been the world’s largest gold producer for the past seven years.”
Jewelry remains the biggest source of demand, hitting more than 716 tons in a 43% year-over-year increase. Purchases of gold bars increased by more than 375 tons for a 57% gain.
“This was a large magnitude of increase for gold bars, and it might show the Chinese people’s strong desire for gold as an investment,” noted Hu Yanyan of Everbright Futures. …
“The surge in Chinese gold consumption has helped to limit price declines,” Shanghai Leading Investment Management Co.’s Duan Shihua told Bloomberg. “If Chinese demand is sustained, it will be a long-term bullish factor.”
Capital Futures analyst Liu Xu added: “As the domestic market offers little alternative choices — the equity market underperformed while the government discouraged investments in the real-estate sector — more of the growing wealth is looking to gold as a means to store value.”
Much of this gold has to come from somewhere, and as has been previously documented, much of it has flowed out of Western gold exchange-traded funds and into Swiss refineries, where it has been melted down to 99% purity and shipped to China. A potential supply bottleneck could come when and if Western investors turn away from stocks. “Keep an eye on the ‘gold holdings’ of the GLD and other U.S. paper gold ETFs, whose drop in holdings for now has offset Chinese accumulation on the margin,” Zero Hedge noted. “Once GLD gold holdings solidly resume their climb higher, that will be the key upward gold price inflection point.”
Another key issue that gold investors should be watching is China’s official gold holdings, which don’t factor into the latest statistics. Its official reserves reportedly stand at 1,054 metric tons, but here’s the rub: “China last announced a rise in its gold reserves in April 2009 and has not revised the figure since, though there had been recent market speculation that the bank had been accumulating gold reserves and would announce a new figure,” Reuters reported.
With all the moves China has been making to increase its role in the global gold market, not to mention internationalize its currency, no one really believes that Beijing’s reserves have been static since 2009. Analysts such as Jim Rickards say China’s next update on its holdings — which he projects could run as high as 5,000 tons — will be a metaphorical shot heard ’round the world, thereby forcing many investors into bullion who hitherto have stayed away from it.
Nonetheless, South China Morning Post writer Tom Holland dismisses that notion as fantasy. “China’s huge appetite for gold has inspired dozens of conspiracy theories. They are all nonsense,” he wrote. He argues that China simply doesn’t have anywhere near enough gold to provide a backing for the yuan.
Rickards’ response? “People say there is not enough gold in the world. The answer is there is always enough gold in the world. It’s just a question of the price. Now, at $1,300 an ounce, there is not enough gold to support world trade and finance. But at $10,000 per ounce, there is enough gold. It’s not about gold, it’s about the price.”
Holland, perhaps naively, concludes: “Far from plotting to corner gold markets and take over the world’s monetary system, it looks as if China may be doing nothing more than maintaining a constant allocation to the stuff.”
Yes, Mr. Holland, and if you believe that, we hear there’s a Great Wall in China you might be interested in buying.
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