Already World's Largest Gold Producer, China Still Hungry to Grow its Market

China’s on a mission to further internationalize its gold market, as indicated by a recent announcement to allow more foreign bullion suppliers to import, export, and trade in its market. Previously, the Shanghai Gold Exchange had only five external bank members and that’s including the Chinese divisions of HSBC and Standard Chartered. This looks likely to change soon.

According to Bloomberg:

“Gold demand in China, the world’s largest producer, gained in the first half as government measures to cool the property market and falling equities spurred investment, the Shanghai Gold Exchange said July 7. Spot gold gained to a record in June as investors sought to protect their wealth amid concerns about the global economic recovery.

“‘China’s domestic production of gold, albeit the largest in the world, cannot satisfy its demand,’ said Ellison Chu, managing director at the precious-metals desk at Standard Bank Asia Ltd. in Hong Kong. ‘By allowing more foreign participation and more Chinese commercial banks to import and export, China can better balance its demand and supply.’…

“…’China’s gold market liberalization sends a strong demand signal and its very positive for the price of gold,’ said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. ‘It is a structural demand shift which must result in higher gold prices as the global equation has changed now significantly with more gold consumers and investors.'”

China has consistently downplayed the concept of using gold as a foreign reserves asset – this, despite being the world’s largest producer – but, is again bolstering enthusiasm for gold as it’s done before. In the past, China has specifically encouraged its citizens to maintain personal savings in the precious metal. Now, in addition to bringing more players into its gold market, it’s planning to provide new financial support for overseas investment by large bullion companies. China insists gold is not that useful, but it almost denies its interest so much – while it concurrently strengthens its own market — as to appear insincere.

You can read more details in Bloomberg coverage of China opening its gold market to further trading and imports.

Best,

Rocky Vega,
The Daily Reckoning

The Daily Reckoning