China
pushes silver and gold investment to the masses
Author: Lawrence Williams | Thursday , 03 Sep 2009
A
report suggests that the Chinese government is pushing the
general public into buying gold and silver bullion, which
could have a dramatic effect on the markets.
We are indebted again to Paul
Mylchreest's Thunder Road Report for news that will bring
big smiles to gold and silver investors everywhere. Apparently
China is pushing the idea of buying gold and silver for investment
purposes to the general population in the way that Western
television sells soap powder. If 1.3 billion Chinese citizens
start buying gold and silver, even in tiny quantities, imagine
what that will do to the market!
The report notes that China's Central Television,
the main state-owned television company, has run a news programme
letting the public know how easy it is to buy precious metals
as an investment. On silver investment the announcer is quoted
as saying " China has introduced its first ever investment
opportunity for silver bullion. The bars are available in
500g, 1kg, 2kg and 5kg with a purity of 99.9%. Figures show
that gold was fifty times more expensive than silver in 2007,
but now that figure has reached over seventy times. Analysts
say that silver has been undervalued in recent years. They
add that the metal is the right investment for individual
investors and could be a good way to cash in."
What appears to have happened in China is
a total relaxation of strictures on holding precious metals
by the individual with the government pushing gold and silver
as an investment option, seemingly at every opportunity. This
is a far cry from the situation only a few years ago where
the distribution of gold and silver was strictly controlled.
Now, the Thunder Road Report notes that every bank will sell
gold and silver bullion bars in four different sizes to individuals
and gold related investments are said to be soaring in popularity.
Around a year ago, Leyshon Resources managing
director, Paul Atherley, in an investor presentation in London
- and no doubt delivered elsewhere in the world too - commented
that some employees at the company's gold mining project in
northern China would, on pay day, go to the local bank and
buy a small gold bar as an investment and wealth protector.
To an extent we put this down at the time to mining company
hype - but this seems to be exactly the same phenomenon noted
by Thunder Road. The Chinese are being converted from being
the lowest per capita gold consumers in the world to a nation
of small precious metals investors. Now, by next year, Chinese
consumption of gold is likely to exceed that of India, which
has been for years the world's biggest gold market. And one
suspects that the potential for gold purchasing by individuals
is only in its earliest stages. As more and more Chinese move
into the cities and individual wealth grows, this trend is
only likely to accelerate.
Paul ends the piece on Chinese gold and silver
potential with the following comment: "Simply put, the
Chinese government is trying to trigger a national gold craze...and
it's working. The Chinese public now has gold trading platforms
on steroids.... ...Also, for the first time in history, Chinese
investors can even trade gold abroad (in London) with the
swipe of a ‘Lucky Gold' card. I can't even get Bank of America
to open a foreign currency account."
This may be an overstatement of the case from
a precious metals bull - or it may not! Certainly if China
is indeed pushing the public to buy gold then there may well
be a hidden agenda here. It's unlikely they are doing it and
will suddenly pull the rug out from under millions of investors.
A cynic (or a raging gold bull) would suggest that this will
precede a move to switch a good proportion of the country's
reserves into gold which would have a huge effect on the global
gold price and could prove disastrous for the dollar. Maybe
it's not in China's interests to drive the dollar down too
much until it has managed to divest itself of the huge dollar
overhang (see the article on Chinese Sovereign Wealth Funds
we published yesterday - Chinese sovereign wealth fund dumping
dollars for strategic investments like gold ). The country
may well already be, of course, surreptitiously building its
gold reserves without reporting the build-up.
If the Chinese are indeed beginning to buy gold and silver
as the quoted report suggests then this has to be a strong
signal that prices are going to rise, and perhaps rise dramatically,
in the relatively near future. We await comment from other
China watchers for confirmation of the gold and silver buying
spree, but with global gold production at best flat and probably
in decline, even a small increase in Chinese buying could
have a substantial impact on gold and silver prices.