U.S. Coin Collecting

China Becomes World's Largest Gold Buyer

Gold and silver are higher again today with the debt laden dollar, euro and yen all being sold. News that China has become the world's largest buyer of gold bullion and has seen investment demand double continues to reverberate in the markets and may have contributed to this morning's strength.

China becoming the world's largest gold buying nation is very important. While informed analysts have been saying that this would inevitably happen much of the commentary and most of the public remain completely unaware of the huge implications that Chinese gold demand has for thegold market.

Indeed, there continues to be a huge level of ignorance regarding the scale and sustainability of China's, but also India's and other large and increasingly wealthy Asian countries, demand for goldand silver bullion.

Chinese investors bought 93.5 tonnes of gold coins and bars in the first quarter. China produced 340 metric tons of gold last year and consumption was about 700 tonnes, leaving a gap of nearly 360 tonnes.

Demand is forecast to increase due to the growing wealth of the Chinese middle class and deepening inflation in China.

What is most important and rarely covered is the fact that gold ownership by the Chinese public remains minuscule. Especially when compared to other Asian countries such as Vietnam and India.

Gold ownership is rising from a very, very low base which means that the investment demand and demand for an inflation hedge from 1.3 billion increasingly wealthy Chinese people is more than sustainable.

The not realized important fact that the people of China were banned from owning gold bullion from 1950 to 2003, means that the per capita consumption of over 1.3 billion people is rising from a tiny base.

While the recent increase in Chinese demand has been very significant, it is likely to continue and the demand is sustainable due to Chairman's Mao's half-century gold ownership ban.

Should the Chinese economy crash as some predict, demand could fall. However, sharp declines in Chinese equity and property markets and a depreciation of the yuan would likely lead to significant safe haven demand for gold.

Indeed, should high inflation continue in the Chinese economy or should higher inflation or even stagflation occur than Chinese demand could even increase.

Chinese demand alone likely puts a floor under the gold market at $1,450/oz.

The inflation adjusted high of $2,400/oz remains very likely given Chinese and Asian demand alone for gold bullion.

Many market participants and non gold and silver experts tend to focus on the daily fluctuations and "noise" of the market and not see the "big picture" major change in the fundamental supply and demand situation in the gold and silver bullion markets – particularly due to investment and central bank demand from China and the rest of an increasingly powerful and wealthy Asia.

It is worth noting that the People's Bank of China's gold reserves are very small when compared to those of the U.S. and indebted European nations. China appears to be quietly accumulating goldbullion reserves. As was the case previously, they will not announce their gold purchases in order to ensure they accumulate sizeable reserves at more competitive prices.

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