A bit lengthy but interesting. From MineWeb:

QUOTE:

How does China really view gold?

Chinese officials have been making contrasting statements on how it views gold? What is the true picture?

Author: Shivom Seth
Posted: Monday , 05 Jul 2010

MUMBAI -

It had been banned for decades - gold buying in China. But the Chinese government underwent a volte face last year, and urged the public to own physical gold, while China's gold reserves managed to breach 1,054 tonnes by the end of 2009.

While this immediately lifted the country to the world's fifth largest in terms of reserve volume, behind the US, Germany, Italy and France, the Chinese government appears to have gone to town recently to highlight its disinterest in gold.

China's State Administration of Foreign Exchange, better known as SAFE, reportedly said that ``the gold market is too small, illiquid and volatile to be considered suitable for asset allocation.''

But, the Chinese administration's attempt to downplay the role of gold should be seen in the context of the fact that the country has nearly doubled its gold holdings over the past seven years - most of it very surreptitiously. For some time now, China has been doing its best to corner world gold supplies.

The government has also been urging citizens to put aside at least 5% of their savings in both gold and silver. The state-run media has been brought into action to promote the fact that consumers can easily buy gold and silver bullion bars in four denominations.

Predictably, Chinese demand for gold bars and jewellery has soared. Retail investment demand in China rose 57% in the first quarter of 2010 from the same period a year ago, while jewellery demand increased 11%, according to a report by the World Gold Council.

Last year saw Chinese gold consumption cross $14 billion, accounting for about 11% of global demand. In comparison, India's gold holdings continue to lag those of major economies, despite its big ticket purchase from the International Monetary Fund (IMF) in October last. India became the largest buyer of gold from the IMF and from that moment on, a new round of growth in gold prices was set in motion.

As Mark Pervan, senior commodities analyst at ANZ, told clients in a note recently: ``India is no stranger to gold. The government is gearing up for growth and wants to recalibrate its reserves...They can't lift their gold holdings from domestic output like China.''

The IMF has declared its intention to sell a total of 403.3 tons of gold, though India, Mauritius and Sri Lanka bought 212 tons last year. The moot question doing the rounds is - who is going to step up to the plate - some small amounts have already been sold this year, but it seems China has no interest? Analysts insist that China will not buy from the open market and instead shore up from its own miners.

China has managed to surge past several nations to become the world's largest producer of gold. On some estimates, the Asian major has already vaulted ahead of India to become the world's biggest gold consumer, buying 461-tons last year. The government is seen to be also buying gold from its own miners, and keeping supplies off the world markets by exporting less.

Given that the Chinese people (like most other Asian countries) already have much more of an appetite for gold than people in most Western nations, what would happen to the gold price if just 10% of the Chinese population begin to perceive gold as an investment? Moreover, with the government urging people to load up on bullion, the country clearly expects a strong future for precious metals.

Add to all this the recent statement by Hou Huimin, vice general secretary of the China Gold Association, who has advocated tripling China's gold reserves to 5,000 metric tons, which is over $211 billion worth at today's prices. Clearly, China is ensuring that it will continue to have a major say in the price of gold on the global market.

Another subject of intense debate with investors is the exact composition of China's $2.4 trillion of reserves. Most of them aver that even a slight shift in portfolio, would immediately move markets and destabilise the price of gold.

China holds just 1.6% of its currency reserves in gold, compared to 70% by the United States and Germany's 66%, according to a report by Credit Suisse.

Given the Euro destabilisation, some analysts are of the view that China may look to gold as a way to hedge its foreign reserve holdings. Credit Suisse's head of global equity strategy, Andrew Garthwaite has seconded this in a note to clients.

On a talk show on CNBC recently, Garthwaite noted that if China and Japan were to put 10% of their reserves in gold, the ``increase in demand for gold would be three and a half times annual mine production.''

Since 2004, China has raised gold production every year, producing a total of 313.98 tonnes last year, an average of 26.165 tonnes per month. Though China's gold output slowed down in May 2010, it was up 5.91% between January to May, 2010, according to a statement from the ministry.

Recently, the country even managed to knock off South Africa as the world's largest gold mining nation, with more than 330 new gold mines extracting 110,000 tons of gold-bearing ore per day.

As for mergers and acquisitions, the Chinese have been at the forefront, once again. Chinese investment in 2009 made up $17 billion, or 22% of all global mining merger and acquisition activity,'' according to a 2009-end PriceWaterhouseCoopers (PWC) report.

PWC has ranked China Shenhua Energy as the world's fourth-largest mining company in terms of market capitalisation, after BHP Billiton, Vale and Rio Tinto, and ahead of Anglo American (fifth) and Xstrata (sixth). PWC's list also has five Chinese companies in the world's top 40 miners, in terms of market capitalisation.

Several reports have indicated that China has been purchasing gold from its domestic mines at below-market prices and not reporting the transactions. While many analysts and traders insist that this practice will continue into the near future, yet others believe that the trend is part of a more global effort aimed at revisiting gold as a monetary reserve asset.

In the midst of all this, one thing is for sure - China's announcement last year it had transferred gold holdings from the SAFE books to the People's Bank of China, letting the figures be officially known in the country's monetary reserve numbers. If the Asian country decided it is time to announce this to the world market, what else lies behind the red curtain?

How does China really view gold?

Chinese officials have been making contrasting statements on how it views gold? What is the true picture?

Author: Shivom Seth
Posted: Monday , 05 Jul 2010

MUMBAI -

It had been banned for decades - gold buying in China. But the Chinese government underwent a volte face last year, and urged the public to own physical gold, while China's gold reserves managed to breach 1,054 tonnes by the end of 2009.

While this immediately lifted the country to the world's fifth largest in terms of reserve volume, behind the US, Germany, Italy and France, the Chinese government appears to have gone to town recently to highlight its disinterest in gold.

China's State Administration of Foreign Exchange, better known as SAFE, reportedly said that ``the gold market is too small, illiquid and volatile to be considered suitable for asset allocation.''

But, the Chinese administration's attempt to downplay the role of gold should be seen in the context of the fact that the country has nearly doubled its gold holdings over the past seven years - most of it very surreptitiously. For some time now, China has been doing its best to corner world gold supplies.

The government has also been urging citizens to put aside at least 5% of their savings in both gold and silver. The state-run media has been brought into action to promote the fact that consumers can easily buy gold and silver bullion bars in four denominations.

Predictably, Chinese demand for gold bars and jewellery has soared. Retail investment demand in China rose 57% in the first quarter of 2010 from the same period a year ago, while jewellery demand increased 11%, according to a report by the World Gold Council.

Last year saw Chinese gold consumption cross $14 billion, accounting for about 11% of global demand. In comparison, India's gold holdings continue to lag those of major economies, despite its big ticket purchase from the International Monetary Fund (IMF) in October last. India became the largest buyer of gold from the IMF and from that moment on, a new round of growth in gold prices was set in motion.

As Mark Pervan, senior commodities analyst at ANZ, told clients in a note recently: ``India is no stranger to gold. The government is gearing up for growth and wants to recalibrate its reserves...They can't lift their gold holdings from domestic output like China.''

The IMF has declared its intention to sell a total of 403.3 tons of gold, though India, Mauritius and Sri Lanka bought 212 tons last year. The moot question doing the rounds is - who is going to step up to the plate - some small amounts have already been sold this year, but it seems China has no interest? Analysts insist that China will not buy from the open market and instead shore up from its own miners.

China has managed to surge past several nations to become the world's largest producer of gold. On some estimates, the Asian major has already vaulted ahead of India to become the world's biggest gold consumer, buying 461-tons last year. The government is seen to be also buying gold from its own miners, and keeping supplies off the world markets by exporting less.

Given that the Chinese people (like most other Asian countries) already have much more of an appetite for gold than people in most Western nations, what would happen to the gold price if just 10% of the Chinese population begin to perceive gold as an investment? Moreover, with the government urging people to load up on bullion, the country clearly expects a strong future for precious metals.

Add to all this the recent statement by Hou Huimin, vice general secretary of the China Gold Association, who has advocated tripling China's gold reserves to 5,000 metric tons, which is over $211 billion worth at today's prices. Clearly, China is ensuring that it will continue to have a major say in the price of gold on the global market.

Another subject of intense debate with investors is the exact composition of China's $2.4 trillion of reserves. Most of them aver that even a slight shift in portfolio, would immediately move markets and destabilise the price of gold.

China holds just 1.6% of its currency reserves in gold, compared to 70% by the United States and Germany's 66%, according to a report by Credit Suisse.

Given the Euro destabilisation, some analysts are of the view that China may look to gold as a way to hedge its foreign reserve holdings. Credit Suisse's head of global equity strategy, Andrew Garthwaite has seconded this in a note to clients.

On a talk show on CNBC recently, Garthwaite noted that if China and Japan were to put 10% of their reserves in gold, the ``increase in demand for gold would be three and a half times annual mine production.''

Since 2004, China has raised gold production every year, producing a total of 313.98 tonnes last year, an average of 26.165 tonnes per month. Though China's gold output slowed down in May 2010, it was up 5.91% between January to May, 2010, according to a statement from the ministry.

Recently, the country even managed to knock off South Africa as the world's largest gold mining nation, with more than 330 new gold mines extracting 110,000 tons of gold-bearing ore per day.

As for mergers and acquisitions, the Chinese have been at the forefront, once again. Chinese investment in 2009 made up $17 billion, or 22% of all global mining merger and acquisition activity,'' according to a 2009-end PriceWaterhouseCoopers (PWC) report.

PWC has ranked China Shenhua Energy as the world's fourth-largest mining company in terms of market capitalisation, after BHP Billiton, Vale and Rio Tinto, and ahead of Anglo American (fifth) and Xstrata (sixth). PWC's list also has five Chinese companies in the world's top 40 miners, in terms of market capitalisation.

Several reports have indicated that China has been purchasing gold from its domestic mines at below-market prices and not reporting the transactions. While many analysts and traders insist that this practice will continue into the near future, yet others believe that the trend is part of a more global effort aimed at revisiting gold as a monetary reserve asset.

In the midst of all this, one thing is for sure - China's announcement last year it had transferred gold holdings from the SAFE books to the People's Bank of China, letting the figures be officially known in the country's monetary reserve numbers. If the Asian country decided it is time to announce this to the world market, what else lies behind the red curtain?

UNQUOTE

Rob