This Month in Gold – January 2011

Gold Imports by China Soar Almost Fivefold
Bloomberg – The Shanghai Gold Exchange reported that gold bullion imports into China have jumped five-fold since 2009. This reflects strong demand for gold investment among the Chinese, whose local currency, the yuan, is being rapidly devalued to maintain its exchange rate with the US dollar. While prices at the grocery store are rising 5-6% a year in yuan terms, they are falling in terms of gold as the Chinese standard of living rises. The sheer numbers quoted in the report indicate that the Chinese government may have lifted all of its restrictions on gold imports. Still, the result is surprising given China’s status as the world’s largest producer of gold – proving that private demand is outstripping their immense supply. The World Gold Council expects Chinese demand to increase another 43% next year.
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Gold Jumps on China’s Fund Approval
The Australian – Gold saw a jump this month after the Chinese government approved the mainland’s first fund giving Chinese citizens access to foreign gold ETFs. Chinese citizens have not previously had access to gold through the stock exchange, as Americans do with ETFs like GLD and CEF. This new Chinese fund will purchase shares in Western ETFs, rather than purchasing and storing its own gold. Still, this is viewed as a major milestone in the entrance of the Chinese into the gold markets.
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Gold Becoming a Hedge Against “Monetary Uncertainty”
CNBC.com – Famed analyst Dennis Gartman explains that precious metals demand is no longer driven by simple inflation concerns, but rather widespread monetary uncertainty. The eurozone is in danger of breaking apart; Washington is working overtime to undermine the value of the US dollar; and, no other paper currency is prepared to fill the void created by the big two. In fact, most other candidates – such as emerging market currencies – are largely backed by dollars and euros. So, central banks are turning to the only viable alternatives: gold and silver.
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