According to the Hong Kong government’s statistics on gold sales, gold imports to China have hit a record high due to investors looking to protect their wealth from the property slump and economic slowdown. The price of gold has increased to a four-week high, which is the highest price since December. Bloomberg reports:
Mainland China bought 102,779 kilograms from Hong Kong in November, up from 86,299 kilograms in October, according to the Census and Statistics Department of the Hong Kong government. China doesn’t publish gold trade data.“
China’s appetite for gold is very strong and growing,” said Tao Jinfeng, chief investment consultant at Haitong Futures Co., China’s largest brokerage by registered capital. “The few months before the Lunar New Year is typically the peak demand period for Chinese people.” The weeklong holiday begins Jan. 23.
Imports were profitable as prices in Hong Kong mostly traded at a discount to those in China in November. Gold for immediate delivery of 99.99 percent purity on the Shanghai Gold Exchange averaged 356.05 yuan a gram ($1,753 an ounce) in November, compared with an average of 434.68 Hong Kong dollars (353 yuan) at the Chinese Gold & Silver Exchange Society.
As incomes rise, Chinese investors are looking for alternative investments as the Shanghai Composite Index tumbled 33 percent since 2009, making it the worst performer among the world’s 15 biggest markets, while home prices fell for a fourth month in December after curbs that included higher down-payment and mortgage requirements. Per-capita disposable income for households in towns and cities rose 14 percent to 16,301 yuan in the first three quarters of 2011.
China’s government has also invested in gold assets. Investors from China have also bought US bullion coins at the fastest rate in two years, and in the third quarter China passed India to be the largest gold jewelery market. Forbes adds:
Chinese authorities have been looking to diversify their massive foreign exchange to minimize U.S. dollar risk. Senior PBoC officials have been vocal in suggesting gold as a valid alternative. Last December, Zhang Jianhua, head of the PBoC’s research bureau, asked his peers to “further optimize [the PBoC’s] foreign-exchange portfolio and purchase gold assets when the gold price shows a favorable fluctuation.” Zhang went even further, saying “no asset is safe now, the only choice to hedge risks is to hold hard currency – gold.”
The Chinese government currently holds 1,054 tons of gold, or about 1.8% of its foreign reserves, which experts at the World Gold Council consider a very low number. Chinese gold consumption has doubled over the last decade to about 20% of total yearly production.
Investors looking to capitalize on gold’s assent, if indeed it keeps on going up, can do so by tapping into the physically backed SPDR Gold Shares (GLD). Another option is gold equities. Despite underperforming in 2011, gold equities remain at record low multiples and could provide good alternatives. Names like Kinross Gold and Barrick Gold have outperformed bullion so far in 2012, while 2011 rock stars like Goldcorp and Newmont have lagged, but still hold potential.
