China Gold Demand Voracious - Chinese Yuan Gold Standard?

by Tyler Durden
03/03/2011 09:05 -0500
129 comments

From GoldCore

Gold and silver have recovered somewhat from slight falls in Asia overnight and are now higher against the British pound and Swiss franc which are weaker this morning. With geopolitical instability looking set to escalate and the real possibility of a military confrontation in the Mediterranean, any sell off in the precious metals will likely be tentative.



Cross Currency and Precious Metal Table

$1,500/oz for gold and $40/oz for silver remain viable short term targets and any price dip should be seen as a buying opportunity. Bullion dealers, including GoldCore, are experiencing only tentative buying and indeed some selling; buying of bullion is nowhere near the levels seen during the Bear Stearns, Lehman Brothers or more recent Eurozone sovereign debt crises.



Total Known Gold ETF Holdings

The lack of animal spirits in the gold and silver bullion markets is also seen in the decline of the gold ETF holdings (see chart above) and the Commitment of Traders open interest (see below). Neither show any signs of speculative fever whatsoever.

This would suggest that the recent record prices are due to short covering on the COMEX (possibly by Wall Street banks with concentrated short positions as alleged by the Gold Anti-Trust Action Committee or GATA and being investigated by the CFTC) and buying of bullion in the Middle East and Asia, particularly in China.



While all the focus is on the geopolitical risk in the Mediterranean, the not insignificant risks posed by the European sovereign crisis, the possibility of a US municipal and sovereign debt crisis and continuing currency debasement internationally are the prime drivers of gold today.

Quantitative easing, debt monetisation and competitive currency devaluations have not gone away and are leading to deepening inflation which will likely result in much higher prices in 2011 and 2012.

Enter the Chinese Gold Dragon

Overnight, UBS confirmed in a Bloomberg article that China alone imported a massive 200 metric tonnes of gold in just the first two months of 2011. This gold is being bought by China’s 1.3 billion people in order to protect against surging inflation (see news).

The FT last week quoted a senior executive of the world’s largest bank by market capitalisation Industrial and Commercial Bank of China Ltd. (ICBC) about the “voraciousâ€