China and Gold Hoarding

China was found to be purchasing more gold recently compared to their past acquisition pattern; these purchases were made through Hong Kong. China was reported to have imported about 102.8 metric tons in the month of November alone with a $5.4 billion based on January 11, 2011 trade data.

Attention grabbing

China’s gold purchases have caught many parties’ eye and concerned parties are wondering about that country’s massive gold purchases. Gold is known to hold strong purchasing power although it seems expensive to buy and people are concerned about its bubble bursting some time soon. However, many gold experts think otherwise.

Gold prices dropped about 19% from $1,891.90 per oz. between August 22 and December 29 which was a record closing price. However, gold prices continued downwards to $1566.80 which was $145.40 more than its last year’s closing price at $1421.40.

The continuous gold price decline last year played an important role in stimulating an emerging market that is price-sensitive. A rising demand in emerging markets would tend to sustain the bull markets; it is perceived that China’s growing demand on gold is the key to the continuous upward gold prices.

Economy changes

Another reason for the upward trend of gold prices is the fear of the euro zone falling into recession again which is not impossible with the recent downgrades of credit. China has overshadowed India as today’s largest gold jewelry market in Q3 as reported by WGC in its reports on Global Gold Demand Trends. Speculation is rife on possible gains from Hong Kong imports although it may not be retail transactions; however, such transactions are an indication of the central banks’ activity in increasing the country’s reserves.

Some may not know that gold is not allowed to be exported out of China. Hence, it is not surprising to note its central bank’s gold reserves to stand at 1054 tons a couple of years ago; thus, making it the fifth biggest gold reserve in the world. Many had expected China to perform better but the authorities are always anxious in diversifying the nation’s reserves to avoid unnecessary risks that are associated with foreign currencies like the greenback and euro. Purchasing gold by China is a logical action stemmed from its long tradition and viewpoint that gold is proven to be a wealth preserver with a special ability to demand consistent purchasing power. This trait is crucial to the Chinese central bank’s function and goals.