China Buys Gold and the World Follows

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Commodities Corner

Jan. 21, 2011, 12:01 a.m. EST

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First Take "º

Bronfman convicted: the end of an era

By Myra P. Saefong, MarketWatch

SAN FRANCISCO (MarketWatch) "” Gold prices have lost around $75 an ounce this year but analysts are unfazed by the drop, with many betting the slump in prices will soon be cut short as the Chinese New Year feeds an increase in global demand that's destined to last.

"We are entering a period of strong seasonal growth in gold demand and Chinese New Year is a big part of that," said Brien Lundin, editor of Gold Newsletter. "Physical demand has been supporting the gold prices on the downside even during the typical slack periods, and I expect that upcoming increase in demand will also support the price, but at higher levels."

/quotes/comstock/21e!f:gc\g11 GCG11 1,343, -3.50, -0.26% Gold futures's year to date drop

The Chinese New Year, also known as Lunar New Year, begins on Feb. 3 this year and ends with the Lantern Festival 15 days later.

"Chinese gold and silver demand has been phenomenal ahead of the New Year holiday," said Adrian Ash, head of research at BullionVault.com, a leading online service for gold bullion trading and ownership, citing comments from dealers among others.

Shipments have been "heavy" and they began very early, in mid-December, he said.

"Chinese New Year is the time of year when the Chinese share gifts, usually money in little red envelopes," said Mark Leibovit, chief market strategist for VRTrader.com. "Perhaps the little red envelopes will be a bit heavier this year."

But the recent spike in China's demand for gold goes well beyond providing gifts to celebrate the new year.

"It's really simple," said Cary Pinkowski, chief executive officer of Astur Gold /quotes/comstock/11v!e:ast (CA:AST 1.54, +0.08, +5.48%) . "China banned gold ownership for most of the 20th century and that's over. China has a savings rate of more than 30% "¦ [and] has an official inflation rate of 10%."

On Thursday, data out of China showed that consumer inflation hit 4.6% year-on-year in December and GDP expanded by a faster-than-expected 9.8% year-on-year for the fourth quarter. The news sparked a global selloff in commodities and stocks on worries that the fast expansion would prompt policy makers to hike interest rates again. Read more on Chinese growth and inflation.

"The Chinese will buy more and more gold just as every other civilization has in inflationary times and with their high savings rates, they have the money to do it," Pinkowski said.

Compelled to buy

And buy they have.

Since 2005, the January through March period has seen China's private household gold demand average a rise of 22% from the previous nine months, according to a BullionVault analysis, based on GFMS data courtesy of the World Gold Council.

"Long term, that's meant Chinese households have put an ever-greater proportion of their fast-growing annual savings into gold," said Ash, with that portion growing from 0.8% of retained income in 2001 to a forecast of more than 1.7% in 2010.

$( function() { embedPlayerByVideoId('{F4305F22-4A0A-452C-8F3F-F8CF09F0188F}', 'video_F4305F22-4A0A-452C-8F3F-F8CF09F0188F', '162', '287'); }); China's next leader: Who is Xi Jinping?

With Chinese President Hu Jintao poised to step down in 2012, WSJ's Jeremy Page tries to unravel the mystery surrounding Xi Jinping, the man most likely to take over the reins of the world's second largest economy.

The number of gold savings accounts, meanwhile, launched by the Industrial and Commercial Bank of China Ltd. /quotes/comstock/22h!e:1398 (HK:1398 5.89, -0.06, -1.01%)   /quotes/comstock/28c!e:601398 (CN:601398 4.22, +0.07, +1.69%)   /quotes/comstock/11i!idcbf (IDCBF 0.76, -0.02, -1.94%)  only a year ago, has grown beyond 1 million without much public relations or marketing, "which is an extraordinary pace of demand growth," said Martin Hennecke, associate director at Tyche Group in Hong Kong.

China is not alone.

India continues to be the world's biggest gold buyer.

India's import figures for 2010 were sharply higher "” almost one-half above 2009's depressed level, according to Ash.

Gold-buying demand is "traditionally strong" from September through November in India, a combination of the five-day Diwali festival of lights that began on Nov. 5 and the post-harvest and wedding seasons. Gold prices during Diwali jumped 10%, on average, from the previous three months, Ash said.

Page 1Page 2 Add Comment › · Recommend (6) · Post: Alert Email Print More Commodities Corner Jan. 13, 2011 Gasoline's headed for $4 a gallon Dec. 10, 2010 Hibernating commodities are primed to wake Dec. 3, 2010 Gold's a veteran; other metals are rising stars Nov. 19, 2010 Volatility to grow as oil trading terrain shifts Nov. 12, 2010 Drilling challenges slowly reshape oil exploration Explore related topics Banks Computer Hardware Asia Pacific Gold - 100 Oz (Comex) Astur Gold Corp. Industrial And Commercial Bank of China Ltd Comments Screener About Myra Saefong

Myra P. Saefong is our assistant global markets editor based in Tokyo. She has been with MarketWatch since 1998 and holds a master's degree in English literature.

First Take Bronfman convicted: the end of an era

You can call it the end of an era "” and a reason to cringe, for old times' sake, writes Jon Friedman.

11:37 a.m. Today11:37 a.m. Jan. 21, 2011

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/quotes/comstock/11v!e:ast Astur Gold Corp. (AST) /marketstate/country/CA The market is open2:20:28 pm The market is closed2:20:28 pm $ 1.54 Change +0.08 +5.48% Volume 72,300 Real time quotes var embeddedchart1372477820Chart = new EmbeddedChart('#embeddedchart1372477820', NormalChartStyleNoDecimals, 190, 90, '1dy', '5mi', null, null, null, 'CA:AST'); jQuery.data($('#embeddedchart1372477820').get(0), 'embeddedchart', embeddedchart1372477820Chart); Add to portfolio ca:AST Find a Broker Create alert /quotes/comstock/22h!e:1398 Industrial And Commercial... (1398) /marketstate/country/HK The market is open2:20:28 pm The market is closed2:20:28 pm HK$ 5.89 Change -0.06 -1.01% Volume 213.57m Real time quotes var embeddedchart2100666682Chart = new EmbeddedChart('#embeddedchart2100666682', NormalChartStyleNoDecimals, 190, 90, '1dy', '5mi', null, null, null, 'HK:1398'); jQuery.data($('#embeddedchart2100666682').get(0), 'embeddedchart', embeddedchart2100666682Chart); Add to portfolio hk:1398 Find a Broker Create alert /quotes/comstock/28c!e:601398 Industrial And Commercial... (601398) /marketstate/country/CN The market is open2:20:28 pm The market is closed2:20:28 pm ? 4.22 Change +0.07 +1.69% Volume 46.05m Real time quotes var embeddedchart1968730224Chart = new EmbeddedChart('#embeddedchart1968730224', NormalChartStyleNoDecimals, 190, 90, '1dy', '5mi', null, null, null, 'CN:601398'); jQuery.data($('#embeddedchart1968730224').get(0), 'embeddedchart', embeddedchart1968730224Chart); Add to portfolio cn:601398 Find a Broker Create alert /quotes/comstock/11i!idcbf Industrial And Commercial... (IDCBF) /marketstate/country/US The market is open2:20:28 pm The market is closed2:20:28 pm $ 0.76 Change -0.02 -1.94% Volume 34,000 Real time quotes var embeddedchart1575243448Chart = new EmbeddedChart('#embeddedchart1575243448', NormalChartStyleNoDecimals, 190, 90, '1dy', '5mi', null, null, null, 'US:IDCBF'); jQuery.data($('#embeddedchart1575243448').get(0), 'embeddedchart', embeddedchart1575243448Chart); Add to portfolio IDCBF Find a Broker Create alert Featured Commentary » Next: Mark Hulbert

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The Chinese New Year, also known as Lunar New Year, begins on Feb. 3 this year and ends with the Lantern Festival 15 days later.

"Chinese gold and silver demand has been phenomenal ahead of the New Year holiday," said Adrian Ash, head of research at BullionVault.com, a leading online service for gold bullion trading and ownership, citing comments from dealers among others.

Shipments have been "heavy" and they began very early, in mid-December, he said.

"Chinese New Year is the time of year when the Chinese share gifts, usually money in little red envelopes," said Mark Leibovit, chief market strategist for VRTrader.com. "Perhaps the little red envelopes will be a bit heavier this year."

But the recent spike in China's demand for gold goes well beyond providing gifts to celebrate the new year.

"It's really simple," said Cary Pinkowski, chief executive officer of Astur Gold /quotes/comstock/11v!e:ast (CA:AST 1.54, +0.08, +5.48%) . "China banned gold ownership for most of the 20th century and that's over. China has a savings rate of more than 30% "¦ [and] has an official inflation rate of 10%."

On Thursday, data out of China showed that consumer inflation hit 4.6% year-on-year in December and GDP expanded by a faster-than-expected 9.8% year-on-year for the fourth quarter. The news sparked a global selloff in commodities and stocks on worries that the fast expansion would prompt policy makers to hike interest rates again. Read more on Chinese growth and inflation.

"The Chinese will buy more and more gold just as every other civilization has in inflationary times and with their high savings rates, they have the money to do it," Pinkowski said.

And buy they have.

Since 2005, the January through March period has seen China's private household gold demand average a rise of 22% from the previous nine months, according to a BullionVault analysis, based on GFMS data courtesy of the World Gold Council.

"Long term, that's meant Chinese households have put an ever-greater proportion of their fast-growing annual savings into gold," said Ash, with that portion growing from 0.8% of retained income in 2001 to a forecast of more than 1.7% in 2010.

With Chinese President Hu Jintao poised to step down in 2012, WSJ's Jeremy Page tries to unravel the mystery surrounding Xi Jinping, the man most likely to take over the reins of the world's second largest economy.

The number of gold savings accounts, meanwhile, launched by the Industrial and Commercial Bank of China Ltd. /quotes/comstock/22h!e:1398 (HK:1398 5.89, -0.06, -1.01%)   /quotes/comstock/28c!e:601398 (CN:601398 4.22, +0.07, +1.69%)   /quotes/comstock/11i!idcbf (IDCBF 0.76, -0.02, -1.94%)  only a year ago, has grown beyond 1 million without much public relations or marketing, "which is an extraordinary pace of demand growth," said Martin Hennecke, associate director at Tyche Group in Hong Kong.

China is not alone.

India continues to be the world's biggest gold buyer.

India's import figures for 2010 were sharply higher "” almost one-half above 2009's depressed level, according to Ash.

Gold-buying demand is "traditionally strong" from September through November in India, a combination of the five-day Diwali festival of lights that began on Nov. 5 and the post-harvest and wedding seasons. Gold prices during Diwali jumped 10%, on average, from the previous three months, Ash said.

Myra P. Saefong is our assistant global markets editor based in Tokyo. She has been with MarketWatch since 1998 and holds a master's degree in English literature.

You can call it the end of an era "” and a reason to cringe, for old times' sake, writes Jon Friedman.

11:37 a.m. Today11:37 a.m. Jan. 21, 2011

"China buys gold and the world follows http://on.mktw.net/eyTmCs" 12:10 a.m. EST, Jan. 21, 2011 from MktwSaefong

"The Turkish #lira drops after #Turkey's surprise rate cut. http://bit.ly/fiT2EY" 11:55 a.m. EST, Jan. 20, 2011 from MktwSaefong

"In currencies, the Polish #zloty rises after the National Bank of #Poland hikes rates for first time since June '08. http://bit.ly/hM7xpS" 1:38 p.m. EST, Jan. 19, 2011 from MktwSaefong

"The projected growth in #emerging #Asia is likely strong enough to overcome concerns over rising oil/metals prices. http://bit.ly/fiB7QF" 10:56 a.m. EST, Jan. 19, 2011 from MktwSaefong

"U.S. #dollar relatively stable as traders digest the latest economic figures. http://bit.ly/ggetRU" 2:57 p.m. EST, Jan. 14, 2011 from MktwSaefong

Mark Hulbert

On the Markets

Reports of euro's death are premature

Jon Friedman

Media Web

Eight simple rules for covering Jobs's leave

Myra Saefong

Commodities Corner

China buys gold and the world follows

Howard Gold

Emerging markets have had their day

John Prestbo

Read Full Article »