Sales of yellow metal stay golden
By Zhang Fengming |
October 20, 2010, Wednesday
|
Print Edition
Print Edition
GOLD bugs are on a buying spree in China despite record prices as the government continues to loosen controls over the domestic market for the shiny metal.
Gold prices rose to a record US$1,377.60 on October 14. The surge reflected a slump in the US dollar as investors are concerned of currency depreciation as the Federal Reserve signaled more quantitative easing policy to bolster a faltering economy.
"High prices didn't put a brake on our gold bullion sales," said Li Qingfei, general manager of the Shanghai branch of China National Gold. "On the contrary, gold sales are booming just like the housing market, with buyers anticipating that prices will continue to rise."
The company said its sales in Shanghai alone are expected to skyrocket by 350 percent this year.
"Actually, our first-half sales were already double the whole of 2009," said Li. "They were much stronger than expected."
China National Gold, the country's biggest gold miner, has expanded into the retail gold market in recent years, taking advantage of its up-stream ability to sell bullion at prices lower than gold jewelers.
China is already the world's second biggest gold consumer after India.
Although jewelry accounts for the lion's share of sales, demand for gold as an investment is picking up rapidly.
The investment end of the market is most sensitive to government deregulation of the precious metal.
The People's Bank of China, together with five government ministries and regulators, published a proposal in August aimed at expanding the development of the domestic gold market.
China said it will cut taxes on gold bullion, allow more commercial banks to import and export the precious metal, improve foreign-exchange policies related to then gold market and further open the market to overseas players.
It's the most significant policy change in the nation holding the world's fifth-largest gold reserves since deregulation was first announced a decade ago.
The new proposal is targeted especially at the fast-growing but small investment market.
"Recent developments in China are likely to have positive longer-term implications for this increasingly important market," said the World Gold Council in a statement. "The move further reinforces our view that there is huge potential for gold ownership to increase among Chinese consumers, in a market with tight domestic supply."
China National Gold's Li said the new policies won't be much of a shot in the arm for retail sales but will help the industry as a whole.
Open-up
In 2002, China set up the Shanghai Gold Exchange, then its sole gold bourse, and allowed individuals and companies to trade bullion freely.
Gone were quotas and limits on gold transactions set by the central bank.
It wasn't until the last five years that individuals woke up to the idea of gold as an investment instrument, and now that segment continues to increase at a rapid clip.
Almost a decade ago, China Gold Coin was the only firm selling investment-grade gold bullion that investors could sell back to the company.
However, with a bull run in the yellow metal that started in 2003, more companies are elbowing their way into bullion trading. China Gold Coin, jewelry retailers and banks are all wooing the gold bugs.
In the second quarter, demand for gold jewelry in China, including the mainland, Hong Kong and Taiwan, rose 5 percent to 82.3 tons. Demand for investment gold surged 157 percent to about 38 tons.
The WGC said it expects demand for gold to stay solid for the rest of this year.
In the second quarter, consumer demand for gold products rose 29 percent to 120 tons.
Resilient gold-buying at current prices suggests that consumers in China are becoming inured to higher prices, according to the WGC.
In China, the yellow metal is considered a symbol of good fortune.
In times of prosperity, sales of gold jewelry expand. In hard economic times, investors flock to gold as a safe haven.
Amid global concerns over a double-dip recession, sovereign debt risk and loose monetary policies, gold will continue to rise in value, said GFMS Ltd, an independent metals research consulting firm.
And the new high price set on October 11 backed his view.
"We'll probably get a fair bit of profit-taking as we head into the New Year, but I wouldn't take that as a sign that the party's over," said Philip Klapwijk, chairman of GFMS Ltd. "Further gains in 2011 are far from out of the question."
Historically, gold has shown itself to be a volatile commodity.
The precious metal first climbed above the key technical level of US$1,000 in February 2008 before tumbling to US$890 in March that year. The precious metal then clawed its way back to US$1,000 in June that year.
Gold prices rose to a record US$1,377.60 on October 14. The surge reflected a slump in the US dollar as investors are concerned of currency depreciation as the Federal Reserve signaled more quantitative easing policy to bolster a faltering economy.
"High prices didn't put a brake on our gold bullion sales," said Li Qingfei, general manager of the Shanghai branch of China National Gold. "On the contrary, gold sales are booming just like the housing market, with buyers anticipating that prices will continue to rise."
The company said its sales in Shanghai alone are expected to skyrocket by 350 percent this year.
"Actually, our first-half sales were already double the whole of 2009," said Li. "They were much stronger than expected."
China National Gold, the country's biggest gold miner, has expanded into the retail gold market in recent years, taking advantage of its up-stream ability to sell bullion at prices lower than gold jewelers.
China is already the world's second biggest gold consumer after India.
Although jewelry accounts for the lion's share of sales, demand for gold as an investment is picking up rapidly.
The investment end of the market is most sensitive to government deregulation of the precious metal.
The People's Bank of China, together with five government ministries and regulators, published a proposal in August aimed at expanding the development of the domestic gold market.
China said it will cut taxes on gold bullion, allow more commercial banks to import and export the precious metal, improve foreign-exchange policies related to then gold market and further open the market to overseas players.
It's the most significant policy change in the nation holding the world's fifth-largest gold reserves since deregulation was first announced a decade ago.
The new proposal is targeted especially at the fast-growing but small investment market.
"Recent developments in China are likely to have positive longer-term implications for this increasingly important market," said the World Gold Council in a statement. "The move further reinforces our view that there is huge potential for gold ownership to increase among Chinese consumers, in a market with tight domestic supply."
China National Gold's Li said the new policies won't be much of a shot in the arm for retail sales but will help the industry as a whole.
Open-up
In 2002, China set up the Shanghai Gold Exchange, then its sole gold bourse, and allowed individuals and companies to trade bullion freely.
Gone were quotas and limits on gold transactions set by the central bank.
It wasn't until the last five years that individuals woke up to the idea of gold as an investment instrument, and now that segment continues to increase at a rapid clip.
Almost a decade ago, China Gold Coin was the only firm selling investment-grade gold bullion that investors could sell back to the company.
However, with a bull run in the yellow metal that started in 2003, more companies are elbowing their way into bullion trading. China Gold Coin, jewelry retailers and banks are all wooing the gold bugs.
In the second quarter, demand for gold jewelry in China, including the mainland, Hong Kong and Taiwan, rose 5 percent to 82.3 tons. Demand for investment gold surged 157 percent to about 38 tons.
The WGC said it expects demand for gold to stay solid for the rest of this year.
In the second quarter, consumer demand for gold products rose 29 percent to 120 tons.
Resilient gold-buying at current prices suggests that consumers in China are becoming inured to higher prices, according to the WGC.
In China, the yellow metal is considered a symbol of good fortune.
In times of prosperity, sales of gold jewelry expand. In hard economic times, investors flock to gold as a safe haven.
Amid global concerns over a double-dip recession, sovereign debt risk and loose monetary policies, gold will continue to rise in value, said GFMS Ltd, an independent metals research consulting firm.
And the new high price set on October 11 backed his view.
"We'll probably get a fair bit of profit-taking as we head into the New Year, but I wouldn't take that as a sign that the party's over," said Philip Klapwijk, chairman of GFMS Ltd. "Further gains in 2011 are far from out of the question."
Historically, gold has shown itself to be a volatile commodity.
The precious metal first climbed above the key technical level of US$1,000 in February 2008 before tumbling to US$890 in March that year. The precious metal then clawed its way back to US$1,000 in June that year.
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