China on track to become TOP GOLD BUYER

(Financial Times) — China’s gold imports are estimated to have more than doubled from a year ago in the run-up to Chinese new year, putting the country on track to overtake India as the world’s largest consumer of the precious metal.

The growth in demand is being attributed in part to Chinese families giving each other gifts of gold instead of traditional red envelopes filled with cash.

Fears of inflation have also driven demand for gold as a retail investment.

Precious metals traders in London and Hong Kong said on Wednesday they were stunned by the strength of Chinese buying in the past month. “The demand is unbelievable. The size of the orders is enormous,” said one senior banker, who estimated that China had imported about 200 tonnes in three months.

Gold prices softened in January on the back of positive economic data in the US, but prices for physical gold in Shanghai have been at a premium of about $20 per troy ounce over those in London, underscoring the tightness in Asian markets.

That spread fell to $4 on Wednesday because of slow trading during the new year.

Official data show China importing 209 tonnes of gold the first 10 months of last year, versus 333 tonnes for India for the whole year. The Indian festival of Diwali was once the key driver of seasonal demand patterns because of the large number of weddings taking place during the holidays.

But now, as India’s gold demand has started to smooth out because of changing wedding habits, Chinese new year is starting to have a bigger impact.

Last year about a third of Chinese gold consumption was linked to the holidays, according to a precious metals trader, but this year the spike is more pronounced.

Gold gifts are more popular in China this year than ever, particularly rabbit-themed gold pieces to mark the year of the rabbit. Small bars of 100 ounces or less are elaborated engraved with auspicious rabbit idioms or scenes of rabbits at play.

A gold store in Tangshan, a mid-tier steel town near Beijing, was all but sold out of rabbit-themed products on a recent visit.

With about a five days to go before the start of the holidays, the store clerk said all that was left in stock was a 20-oz carved rabbit bar and a few leftover Bugs Bunny-style statuettes.

Edel Tully, precious metals strategist at UBS, said: “China is on the fast track to replace India as the largest physical consumer. And the Chinese new year is now significantly more important than Diwali in volume terms.”

China consumes about 527 tonnes of gold a year, according to the World Gold Council, an industry body representing gold miners. Traders say China will overtake India as the largest consumer of gold this year.

“The seasonality around Chinese new year is something that we’ve seen in the last two to three years,” said a senior trader in Asia. “This year the demand may actually also carry on after Chinese new year.”

This week China’s exchanges are closed for the holidays and traders are debating how much of the growth in imports has been seasonal and how much is a result of underlying demand. Gold has become popular with retail investors as a hedge against inflation because of curbs on the property market and negative real interest rates for Chinese bank deposits.

By Leslie Hook in Beijing and Jack Farchy in London
Published: February 2 2011 17:25 | Last updated: February 2 2011 17:25

Source: The Financial Times

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