Investing in gold rather than saving money in the bank, tells the tale of a drastically transforming Chinese society where aspirations have risen, inflation bites and investments are carefully calculated.
Demand for the yellow metal reached an all time high in the Middle Kingdom, usurping India of her reign as the gold investment capital of the world as Chinese investors snapped up 90.9 metric tons, up 123 percent year-on-year, outpacing India’s modest rise to 85.6 tons, in the first three months of the year according to the World Gold Council. According to the report, China now accounts for 25 percent of gold investment demand, compared with India’s 23 percent. China’s leap to premiere position is noteworthy as in 2007, just before investing in gold began to take off globally, India’s physical gold demand accounted for 61 percent of the world’s total and China’s 9 percent.
Nonetheless, in terms of total consumer demand, which also included jewelry, India is still a bigger consumer of gold than China, taking in 291.8 tons in the first quarter, compared with China’s 233.8 tons. Still, China is catching up there, too. Its jewelry demand rose 21% in the quarter, faster than the 12% rise in India.
While the Chinese demand is expected to only grow, as the middle class buys more coins and bars for investment, the WGC has also upped its expectations. “In March 2010, we predicted that gold demand in China would double by 2020; however, we believe that this doubling may in fact be achieved sooner,” Albert Cheng, the World Gold Council ‘s managing director for the Far East told the Wall Street Journal.
In accordance with market forces, “Gold prices have more than doubled during the past two years. People now believe to invest in gold would be a good way to fight inflation,” Yuan Xinyu, a financial adviser with Sinolink Securities Co. told Global Times. On May 2, gold price surged to 326.2 yuan (US$50.22) per gram, the highest for the year and also above the previous record of 303.9 yuan per gram in November 9, 2010.
Analysts expect the investment spree to be a result of several factors that have been accruing over the years – using gold as a protection against rising consumer prices, as an alternative investment vehicle to assets like shares and real estate, which have been depressed of late, and the fact that due to an unregulated market many banks and jewelry stores in China have added outlets to sell gold bars and coins in recent months.