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China’s Days Of Coming To Gold’s Rescue May Be Numbered

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Published : October 18th, 2012
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( 6 votes, 1.5/5 ) , 2 commentaries
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Category : Gold and Silver

 

 

 

 

Readers of the usual perma-bull gold and silver sites most certainly know by now that the perma-bulls have often talked about how China is always at the ready to swoop up as much gold and silver as they can get their hands on. Most of the experts featured on one of the biggest perma-bull sites, King World News consistently mention on every down day that buying from China came in to save the day.



Readers however should know the other side of the story that the perma-bull websites don’t often discuss. That is, that if you want to really analyze this consistent bullet point in the gold and silver camps argument you have to pay attention to any information that might show a slowdown in purchasing from the aforementioned China. We already know by skimming the headlines that demand from India for physical gold has been off this year compared to other years implying that the Indians don’t feel that gold is good value at these levels. The story I linked to talks about how World Gold Council on Tuesday announced a 7 per cent discount on purchase of gold coins during Dussehra and Diwali. We don’t see discounts being offered during boom times… we see discounts when there is a surplus of inventory and a slowdown in purchasing. Remember too that gold demand in India had plummeted 38% last August according to Business Insider.

Back to the primary topic involving China however. Some interesting news came across Marketwatch that all gold and silver investors and traders should pay attention to.

The headline came across Marketwatch.com yesterday morning. “China’s falling gold imports hint at rally’s end” The article reads in part;

China might not become the big gold buyer of the future that many people are banking on, according to some analysts, who say recent signs of cooling in the mainland’s gold demand could be a bad omen for now-decade-plus bull market in the metal.

Trade statistics released last week showed mainland Chinese imports of gold from Hong Kong slowed dramatically in August.

Hong Kong shipments of the metal to mainland China for the month totalled 54 tons, a drop of 29% from the 76 tons shipped in July, according to data from the Hong Kong Census and Statistics Department.

“China’s near-term appetite for gold appears to be waning as bullion imports from Hong Kong slow,” HSBC analysts said in a note following the data release last week.

Anecdotal evidence also pointed to the cooling trend, with one Hong Kong bullion dealer saying the word from mainland clients was that gold inventories are saturated.

In this morning’s blog piece from Marketwatch.com, we also have discussion about how “China cooling may seal gold’s demise” which reads in part;

CLSA strategist Russell Napier calculates that China is the most important factor globally in terms of money creation, responsible for 40% “of everything created since 2007.”

“With China so important in creating money, and money supply growth in the developed world still flat on its back, a slowdown in China augurs for lower inflation — perhaps deflation — and higher real rates,” Napier told Marketwatch in an email Wednesday.

Since the Bretton Wood system was dissolved in 1971, allowing the gold’s value to be determined in the open market, prices have tended to do well when real rates of interest have been low, and poorly when they’ve been high, Napier said.

Napier wrote in his email: “With nominal rates close to zero, the market would be fearful about monetary policy responses — bad for gold.”

These are stories that investors must take into consideration when evaluating the intermediate to longer term prospects for their investments. Don’t always put faith in the typical drivel that has become common place for the last year or so in the precious metals space that always applauded the Chinese buyers coming to the rescue every time gold or silver was hit. With stories like these, keep it in mind when reading any analysis that talks about how the Chinese are waiting with open arms to buy any dip. I’m not saying they aren’t but I’m merely advising readers to do a little more homework and not take anything you may read on websites that only give you their point of view to continue to push their meme as gospel. The fact is that demand for physical metal is down in the two largest markets. Until we see demand pick up significantly, prices for the yellow metal may be capped.

 

 

Data and Statistics for these countries : China | Hong Kong | India | All
Gold and Silver Prices for these countries : China | Hong Kong | India | All
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With all the Central Banks ~ in EVERY country in the world ~ buying up every ounce of gold they can get their hands on; I fail to see how China's role, in the world gold market, remains very important. I think the people of Marketwatch.com are laying a thin layer of DOUBT DUST over the Gold Bull Market ~ for TPTB. A little propaganda goes a LONG way in the markets. Hahahahaha . . . I think you shouldn't keep your eye so centered on the China Tree that you fail to see the Gold Buying Forest surrounding it.
It is unusual to have a negative view of gold on this site. nice to get a balance.
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With all the Central Banks ~ in EVERY country in the world ~ buying up every ounce of gold they can get their hands on; I fail to see how China's role, in the world gold market, remains very important. I think the people of Marketwatch.com are laying a  Read more
Gypsy - 10/20/2012 at 2:43 PM GMT
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