Gold is already at high demand... check this out....

China pushes silver and gold investment to the masses

Areport suggests that the Chinese government is pushing the generalpublic into buying gold and silver bullion, which could have a dramaticeffect on the markets.

Author: Lawrence Williams
Posted:Thursday,03 Sep 2009

LONDON -

Weare indebted again to Paul Mylchreest's Thunder Road Report for newsthat will bring big smiles to gold and silver investors everywhere.Apparently China is pushing the idea of buying gold and silver forinvestment purposes to the general population in the way that Westerntelevision sells soap powder. If 1.3 billion Chinese citizens startbuying gold and silver, even in tiny quantities, imagine what that willdo to the market!

The report notes that China's Central Television, the mainstate-owned television company, has run a news programme letting thepublic know how easy it is to buy precious metals as an investment. Onsilver investment the announcer is quoted as saying " China hasintroduced its first ever investment opportunity for silver bullion.The bars are available in 500g, 1kg, 2kg and 5kg with a purity of99.9%. Figures show that gold was fifty times more expensive thansilver in 2007, but now that figure has reached over seventy times.Analysts say that silver has been undervalued in recent years. They addthat the metal is the right investment for individual investors andcould be a good way to cash in."

What appears to have happened in China is a total relaxation ofstrictures on holding precious metals by the individual with thegovernment pushing gold and silver as an investment option, seeminglyat every opportunity. This is a far cry from the situation only a fewyears ago where the distribution of gold and silver was strictlycontrolled. Now, the Thunder Road Report notes that every bank willsell gold and silver bullion bars in four different sizes toindividuals and gold related investments are said to be soaring inpopularity.

Around a year ago, Leyshon Resources managing director, PaulAtherley, in an investor presentation in London - and no doubtdelivered elsewhere in the world too - commented that some employees atthe 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 andwealth protector. To an extent we put this down at the time to miningcompany hype - but this seems to be exactly the same phenomenon notedby Thunder Road. The Chinese are being converted from being the lowestper capita gold consumers in the world to a nation of small preciousmetals investors. Now, by next year, Chinese consumption of gold islikely to exceed that of India, which has been for years the world'sbiggest gold market. And one suspects that the potential for goldpurchasing by individuals is only in its earliest stages. As more andmore Chinese move into the cities and individual wealth grows, thistrend is only likely to accelerate.

Paul ends the piece on Chinese gold and silver potential with thefollowing comment: "Simply put, the Chinese government is trying totrigger a national gold craze...and it's working. The Chinese publicnow has gold trading platforms on steroids.... ...Also, for the firsttime in history, Chinese investors can even trade gold abroad (inLondon) with the swipe of a ‘Lucky Gold' card. I can't even get Bank ofAmerica 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 tobuy gold then there may well be a hidden agenda here. It's unlikelythey are doing it and will suddenly pull the rug out from undermillions of investors. A cynic (or a raging gold bull) would suggestthat this will precede a move to switch a good proportion of thecountry's reserves into gold which would have a huge effect on theglobal gold price and could prove disastrous for the dollar. Maybeit's not in China's interests to drive the dollar down too much untilit has managed to divest itself of the huge dollar overhang (see thearticle 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 thequoted report suggests then this has to be a strong signal that pricesare going to rise, and perhaps rise dramatically, in the relativelynear future. We await comment from other China watchers forconfirmation of the gold and silver buying spree, but with global goldproduction at best flat and probably in decline, even a small increasein Chinese buying could have a substantial impact on gold and silverprices.