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Investing in Coins and Bullion Thread, How much will this affect the spot price of gold? in Coin Forums; China Promotes Gold Ownership By Patrick A. Heller August 06, 2010 Over the past several years, the government in China ...
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    Numismatic Travlntiques's Avatar
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    Exclamation How much will this affect the spot price of gold?

    China Promotes Gold Ownership
    By Patrick A. Heller
    August 06, 2010

    Over the past several years, the government in China has set up infrastructure to enable the nation’s citizens to purchase physical gold. It has also periodically issued pronouncements urging the public to buy gold. During this time, the Chinese government has been a stronger advocate of the private ownership of gold than any other country.

    This effort to increase domestic demand is above and beyond the huge amounts of gold that China’s central bank has added to its reserves since 2003.

    One thing you have to keep in mind about the potential demand for gold in China is that there are not the social (government) safety nets as there are in the United States. As a result, the Chinese save more than 50 percent of their income as “insurance.” Compared to the typical American, the average Chinese citizen has a huge amount of funds available to allocate to purchasing gold.

    There have been significant problems with Chinese citizens being able to acquire physical gold. There are simply too few outlets carrying insufficient inventory. From 2007 to 2009, private physical gold demand in China quadrupled from almost 580,000 ounces to more than 2.3 million ounces. I have heard multiple stories of people having to wait in line at gold stores for as long as four hours in order to make a purchase.

    On Aug. 3, the People’s Bank of China announced several developments to broaden access to gold for private citizens and increase competition in the markets.

    According to a statement posted on the PBOC website, more commercial banks will be authorized to import and export physical gold. In addition, the banks will be encouraged to offer yuan-denominated gold derivatives, which would provide paper evidence of the ownership of some of the rights of owning physical gold.

    The PBOC also promised to improve policies with respect to the gold market. For instance, it will improve policies to speed development of foreign exchange activities. Until recently, it was technically illegal to take yuan in or out of China, though I have talked with a number of people who have traveled there who said that the customs people never asked about transporting Chinese money.

    The central bank has instructed commercial banks to provide better services in loaning funds to domestic gold companies looking to establish foreign branches. In turn, the PBOC will further open the Chinese market to foreigners who wish to trade gold there.

    The PBOC also said it was considering allowing foreign suppliers to provide physical gold directly to the Shanghai Gold Exchange.

    The end result of these changes is that there will be more physical gold available for sale and more outlets where people can go to purchase the yellow metal.

    The bank further stated that it would strengthen supervision of the gold market to ensure balanced development (with the definition of balanced development left up to the Chinese government).

    China is already the world’s largest gold producing nation, but domestic physical gold demand is much higher than domestic supplies. As years pass, expect gold imports into China to continue to grow.

    Another item:

    Last Friday, the jobs and unemployment report released by the Bureau of Labor Statistics as so poor that, for only about the third time in the past 50+ months, gold and silver prices rose at the time the report was issued.

    That the prices of gold and silver were “allowed” to rise this particular time is one more sign that the U.S. government may be running out of ammunition to use to continue to suppress prices.

    As I have explained before, one way the U.S. government overstates employment has been with the use of a birth/death adjustment. After counting the changes in jobs, the BLS then pads the number of employed workers simply because the population of the U.S. has increased. Even though the statisticians at the BLS acknowledge that this double counts new jobs, they still do it. Once a year, most recently in the January 2010 report, there is a major correction in the adjustment to undo the error that has crept in over the past year through applying the birth/death adjustment.

    In the previous three months, there were huge numbers of fictitious jobs added through use of the birth/death model (188,000 for April, 215,000 for May and 147,000 for June) which helped make it possible to report that the unemployment rate was stable instead of deteriorating. There were so many Census Bureau positions eliminated in July, against other anemic employment data from the private sector and other government sectors, that I suspect that the BLS didn’t want to “waste” another large fudging of the reports. Consequently, the July birth/death model in total only added 6,000 jobs. This was the lowest adjustment since July 2009, other than the annual correction in January 2010.

    Of course, as bad as the July unemployment numbers were, be prepared for revisions later that could make the results even worse. Along with the release of the July numbers were revisions for May and June that showed a further net decrease in employment of 35,000 compared to the original reports that were issued.

    As more bad financial news gets reported, that will only stimulate further demand for gold and silver.

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    Numismatic Travlntiques's Avatar
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    Sorry about the copy & paste job, but I really found this to be an interesting article!

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    Administrator Jesh's Avatar
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    Good article. I wish I could give a good idea on how this would affect gold, but I don't believe that it will be any major global issue. It's already 'Chinas' Gold', how much of it are they exporting now and before is a major factor. If they weren't exporting major amounts in the past, it will only affect their countries prices.

    I can read more about it and maybe give some more insight, but not any more than you could provide by doing research.

    Regardless, it'll be interesting to see. The demand is definitely there.

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    Numismatic Travlntiques's Avatar
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    For the here-and-now it will have to rest as a rhetorical question. As you mentioned China is THE major exporter of electronic goods which use gold for it's heat resisting conductive properties, so much of this gold will likely be cycled around to the consumers. They are acquiring a good amount, perhaps as a hedge against future price increases. Which still tells me.....they think it can go higher

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    fox is offline
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    As for now I do not believe it's going to affect the price of gold. Gold is going up and up though lately.
    Chinese have a rather nice amount of it but as Travlntiques mentionned it, gold is used as a heat resisting conductive in electronic parts.

    (now the next part is only a supposition)

    However, IF they decide to try and respond to the huge gold demand, 1.4 billion Chinese is definitely not a small market. They might increase their gold stock by importing a lot of it.
    If their stock increases a lot, then the price might go up as well as gold is getting rarer on world's market.

    From 2007 to 2009, private physical gold demand in China quadrupled from almost 580,000 ounces to more than 2.3 million ounces. I have heard multiple stories of people having to wait in line at gold stores for as long as four hours in order to make a purchase.
    Now let's look at this part of the article more closely and try to understand why did they quadruple their demand between 07 and 09.
    To understand you need to know a little about gold's history and our economy.

    Gold has been a payment method for centuries. People used to trade gold coins instead of our actual coins.
    However, after a while, government decided to go with alloy coins.

    It was a drastic change for people.
    At the time producing a 20bucks gold coin cost 20 bucks.
    Therefore people knew that a 20bucks gold coin was worth 20 bucks.
    With alloy coins, things changed a little. The production cost of such a coin dropped dramatically. A 20 bucks coin was being produced for (let's say) 1 dollar.

    However, governments asked people to BELIEVE that it was worth 20 bucks.
    Imagine how they felt at the time when this occurred.
    To help people believe in it,government decided that the alloy currency would be backed up by its equivalence in gold. People could go to the bank and trade their alloy coin for it equivalence in gold.
    Therefore governments started creating huge gold reserves. The currency amount was determined by how much gold was available worldwide. Quite a pain in the *** when you think about it if a country tried to expand its economy.
    At this point the currencies value were exclusively based on people's trust in their government as well as in their own currency.
    Nowadays a country's currency is not backed up by gold reserves anymore.
    Or at least not fully.

    It is interesting to see now what happens during bad time.

    During crises people try to invest their money or rather transfer their money into more "safe" and easier to exchange goods.
    For instance one might chose to go for the Picasso's another will rather buy ancient furniture but most people go for gold.
    Gold is nowadays used by people as a back up if things go wrong.
    In this way, even if their currency goes horribly wrong (ex: inflation) people will still have their gold.
    You can exchange gold for any currency in the world or even pay with it.
    It is world's currency.

    Now what happened in 2007?
    In 2007 things went bad. The economical system was questioned, governments almost went bankrupt (Greece) and people didn't feel safe anymore.
    People do not believe in their currency as much as in the glory ol' days.
    They prefer to have a back up plan and therefore go for the gold in case something happens to their currency.

    So the massive increase is certainly not due to sudden increase in the electronic production but rather a clear sign that people are getting scared about the economy.

    Please also note that gold demand has increased in all the countries since 07.
    But it was interesting to read about China especially since they fix their currency exchange rate

    Hopefully that was clear enough to help one of you understand a little better this article.
    Just my 2 cents.
    Last edited by fox; 12-31-2010 at 08:08 AM.

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    New Member Chester's Avatar
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    I think the gold price has greatly effected ever since the coins are replaced by paper money. It was decided many years back all the currency of a country should be back up gold but i am afraid this is not practiced by any country of the world now.

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    Last edited by Chester; 03-05-2011 at 01:36 AM.

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    Member Aldy2gee's Avatar
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    Im not sure but saint gaudens are the way to go

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    Member wscott577's Avatar
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    Great article. Thanks for sharing!

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    Member ksammut's Avatar
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    I am afraid China and a few other countries are preparing for a US economic meltdown. Once the dollar collapses, gold may have its day again. Time will tell.



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