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The year 2013 in the gold
investment market will be remembered as the year of China, so we’ve produced
a stunning infographic detailing China’s great golden rise to power.
In just a few months the
world’s largest country will overtake India as the biggest consumer of gold
and its gold market continues to break records.
A country that already
mines over 400 tonnes of gold a year, China still demands more physical gold
no matter the price. Between January and July this year the Shanghai Gold
Exchange delivered more than 1,333 tonnes to gold investors.
In the last 100 years
China’s gold mine productivity has climbed from just 4 tons of gold in 1949
to an expected 440 tons this year, none of which is exported. Hong Kong
imports have been over 600 tonnes this year alone, but still more gold is
demanded.
Whilst it may appear that
China has exploded onto the gold scene this is by no means the case. China’s
ancient monetary history is well documented. They are the world’s oldest
scientists when it comes to different forms of money, having being the first
to experiment with paper money and different metallic standards. Therefore
during an international financial crisis one would imagine that the country
with the longest and most diverse monetary history would be the place to turn
to for direction.
Global domination in less than a century?
Less than 100 years ago
the Shanghai Gold Business Exchange was one of the biggest gold centres in the
Far East. Since then gold has gone from being an almost illegal investment to
a market that has become increasingly open in modern China.
Whilst the Western world
works to keep the paper system upright, China’s experience with fiat money
and its concomitant phenomena of debasement and inflation may mean that they
are looking to diversify their monetary system. Their recent history
certainly suggests as much, as they have been gradually opening themselves up
to the world’s most precious marketplace.
Between 1950 and 1995
small changes in China’s gold market were made, a gold jewellery retail
market was opened and the Gold Panda was launched. But the first indication
that the government was looking to develop the gold market came in 1993. At
this point the State changed the price-fixing method for gold from a
state-determined price to a floating one.
Between 2000 and 2002 key
measures were taken that would provide the foundations for the country’s
power in the gold market. In 2000 the Chinese government included the
establishment of an open gold market in its five year economic plan,
indicating gold is a strategic market. Shortly after the PBOC abolished the
monopoly of the gold market and announced a planning and management system to
see it forward.
Just 18 months after the
new weekly quotation system for the gold price was launched (opening up the
gold price to international markets) the Shanghai Gold Exchange officially
opened in 2002. It is this exchange that has grabbed the attention of the
Western media this year.
The State has also worked
hard in the last decade to encourage institutions to participate in the gold
market. In 2010 the paper “Guiding opinions on promoting the development of
the gold market” was co-authored by several senior figures in the gold
market. Amongst other targets commercial banks were asked to be actively
engaged in developing China’s national gold market. Bullion producers were
targeted for strategic assistance, with banks instructed to offer finance for
overseas gold mine purchases and innovation.
China gets modern with her gold investment market
Since 2004 China’s State
Council has continued to push and encourage individual gold ownership. Just
this week the PBOC announced that individuals could import seven ounces of
gold tax free and without reporting to customs. Elsewhere gold savings
accounts are offered in the majority of banks and have proved to be
exceptionally popular. Between 2010 and 2011 ICBC , China and the world’s
largest bank, saw over 1 million gold savings accounts open.
Just five years after it
became legal to invest in gold and silver China’s Central Television began
running news items encouraging citizens to invest in precious metals. At
industry level, senior members of the gold market are almost of celebrity status.
In 2011 Sun Zhaoxue, President of China National Gold Corporation and the
China Gold Association, received the award for Economic Person of the Year on
state television.
Over the coming weeks The
Real Asset Company and @KoosJansen of In
Gold We Trust
will be producing a series of reports that will provide a window into China’s
gold market. The history of China and gold goes back thousands of years, but
right now we have little doubt that we are seeing historical moves in both
the gold and international monetary system.
Stay tuned – China is
taking over the world, one gold bar at a time.
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