Chinese Investors See Golden Opportunity

Beijing-China (Mar 28)  The rise in the price of gold—up 15% from its six-year low in mid-December—is stoking out-of-season buying in China, which consumes more than a fifth of global supplies.

Typically, gold purchases in China are strongly associated with jewelry buying around the Lunar New Year holiday, which this fell in early February. But the uncertainty confronting global economies has driven up demand from a different sort of buyer—the hard-nosed investor.

“It has been very, very busy for us in the last few weeks,” said  Padraig J. Seif, chief executive officer at Finemetal Asia Ltd., a large Hong Kong-based bullion dealer that sold more gold in the first three weeks of March than in all of February.

The biggest jump, Mr. Seif says, has been the 10-fold increase in sales of 250-gram bars, which cost roughly US$10,000. Sales of the 1,000-gram kilobars were up by 50%, with most of the buyers corporate investors rather than jewelry makers.

Volatility in China’s stock markets and its currency, as well as a hot property market in top-tier cities that has made real-estate investment very expensive, is pushing Chinese investors to gold.

Asian investment demand has contributed substantially to the three-month-old price rally, analysts say. It is offsetting the low seasonal demand for jewelry, according to the head of the bullion desk at Scotia Bank, one of largest international banks dealing in precious metals.

Another sign of investment interest in gold is a rise in the premium sellers charge above international spot rates for quick delivery. In Hong Kong it shot up to $1 to $2 an ounce from 40 to 50 cents immediately after the Lunar New Year period.

Gold jewelry is also popular in Asia for its investment potential. It isn’t uncommon for Thais, for example, to buy a number of 24-carat necklaces for appreciation and later sale, and in China, where gold is considered lucky, gold jewelry is a popular Lunar New Year gift.

Source: WSJ