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More dollar devaluation of as much of 34 percent is only realistic solution
New Wave of Gold Rush Hits China
By Liu Jie
China Daily, Beijing
Thursday, December 2, 2004
http://www.chinadaily.com.cn/english/doc/2004-12/02/content_396688.htm
The gold rush is reaching a feverish pitch in major
cities across China.
In a Beijing store, 300 kilograms of gold bars minted
by the China Gold Coin Inc. to commemorate the
Year of the Rooster, going for a retail price of 125
yuan (US$15.60) a gram, were sold out within seven
hours on November 19.
To avoid a stampede for the precious metal, the store,
Beijing Caishikou Department Store, arranged the
sale of the second batch of gold bars on November
26 through a telephone hotline rather than over its
counters. Although the price for each gram of a bar
has increased to 128 yuan (US$15.42) this time,
demand exceeded supply by a big margin, according
to Wang Chunli, the store's general manager.
Gold, as a symbol not only of wealth but also of good
fortune, has always had a special place in the hearts
and minds of the Chinese people.
Other than tradition, the latest round of the gold rush
has been fuelled by a combination of factors, including
the depreciation of the US dollar, the world's major
reserve currency; and the surge in prices of a wide
range of commodities, including oil, otherwise known
as black gold.
Unsurprisingly, China's 300 or so gold producers are
smiling all the way to the bank.
Their combined profits for the first three quarters of
2004 jumped 35 percent from a year earlier to more than
2 billion yuan (US$240 million). China's gold production
during those three quarters increased 7 percent from a
year earlier to 149 tons, while demand is expected to
increase to 220 tons in 2004 from 207 tons in 2003.
The strong demand for the yellow metal has not gone
unnoticed by the nation's banks and other financial
institutions, which are gearing up to cash in on the
boom.
For instance, Bank of China's Shanghai branch, in
November introduced "Gold Treasure," a gold-based
investment instrument operated by the People's Bank
of China, the central bank.
"Gold Treasure" has been designed to make it convenient
for the public to invest in the precious metal. Instead
of taking physical delivery of the gold, the investor
is given a document issued by the bank certifying the
amount purchased. The investor can sell the gold back
to the bank and surrender the certificate.
A central bank source says that trading in "Gold
Treasure" has been increasing by more than 40
percent in volume per month this year. Demand has
consistently exceeded supply by a wide margin, the
source said.
Investors who take pleasure in counting gold they
have can opt for the CGS bullion bars that come in
three weights: 2, 5, and 10 ounces.
They all come in one purity standard: 99.99 percent.
Minted by CGS Limited, a joint venture between
mainland and Hong Kong bullion traders, CGS
Standard Gold Bars have become a favourite of
China's gold investors since they were introduced
to the market in July.
Pricing of the CGS bars is based on the daily gold
price on the London Precious Metal Exchange with
the quotations on the Shanghai Gold Exchange
serving as a reference.
Sales agents for the CGS gold bars say that demand
from investors has been rising. What's more, buyers
are holding onto their gold expecting further increases
in the price, the agents say.
For example, figures released by China Merchants
Bank show that sales of CGS gold bars at its Beijing
branch amounted to 180 kilograms in the period from
July 12 to November 15, while repurchase of the bars
previously sold totalled only 15 kilograms.
An executive of the bank's branch figures investors in
CGS gold bars have, on average, made a gain of
around 5 percent.
"But still, few investors are willing to take the profit
at this time because of the continuous strong uptrend"
of the price of gold," he says.
Like thousands of investors, Long Jing, a middle-aged
executive of a foreign-funded enterprise in Beijing,
bought 2.5 kilograms of CGS gold bars on July 23 at
105.2 yuan (US$12.67) a gram.
But unlike most others, she sold the gold back to the
bank in mid-August when the price went up to 117.26
yuan (US$14.13) per gram and pocketed a total profit
of 37,000 yuan (US$4,458), excluding commissions
and other charges.
Describing herself as a "proactive" investor, Long says
she was back in the game in October buying 3 kilograms
of gold bars. "I am watching the market very closely for
the best time to sell," she says.
Banks are also getting into the game in a big way. China
Merchants Bank, for instance, has applied to the China
Banking Regulatory Commission for permission to provide
an on-line gold trading service to its customers and
allow customers to use the gold they own as collateral
to secure loans.
CGS is understood to have made a similar application
to the bank supervisory agency.
A recent questionnaire by the Beijing Gold Economic
Development Research Centre in 10 major cities in
China showed 70 per cent of respondents said they
would invest in the gold trade if they had the money.
More than 20 percent of securities investors would
transfer part of their capital to gold trade
considering the gloomy stock and securities markets
on the Chinese mainland.
While the average punters have been hit by gold
fever, the professionals on the Shanghai Gold
Exchange are keeping their cool.
After a 40 percent surge in the first 10 months of
this year, trading began to level off.
"We are seeing a cooling-down in activity as traders
become increasingly cautious," says an exchange
manager.
"The big price jump in the past several months has
many traders worried about an impending correction
which could be equally dramatic," he says.
In the face of the continuing price surge, experts and
insiders hold various views about the trend of the
market.
Paul Walker, CEO of GFMS Ltd., the London-based
precious metals consultancy, says "a slump in the
dollar and a surge in (gold) investment are likely
to continue.
Walker made the comment at an international forum
on global gold outlook, infrastructure support, and
market development held on Monday in Beijing.
An analysis report, conducted by ANZ (Australia and
New Zealand Banking Group Ltd.), indicates the gold
price is expected to exceed US$500 per ounce.
The report said the double deficit surge in the United
States, which could not be offset in a short period of
time, might drag the US dollar further down, stimulating
gold to climb to a new record.
However, Liu Shan'en, an analyst at Beijing Gold
Economics Research Centre, describes the current
bullion price as "incredible."
He says the market is reaching the apex of the up-cycle.
"I expect that it (bullion price) will return to a more
rational level any time soon," he says.
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http://www.investmentrarities.com
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Eagle Ranch discussion site:
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Ted Butler silver commentary archive:
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----------------------------------------------------
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----------------------------------------------------
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