05 February 2012

Coals to Newcastle: Gold to China?

China is the world's largest producer of gold, but the middle kingdom actually imports considerably more than it produces! The appetite for gold in China appears to be enormous, and growing rapidly.
China is easily the world’s largest consumer of the metal, but we often forget they are also the world’s largest producer. For the year 2010, it produced 345 tonnes. Its output has increased by 62% since 2001 and it routinely breaks its own records for annual gold production. _Goldmoney via ob-research
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China, already the world No. 1 gold producer, saw its output rise again this year. The country produced a record 360.96 tonnes of the yellow metal in 2011, a 5.9% increase, making it the world's top gold producer for a fifth consecutive year, according to the China Gold Association.

Meanwhile, the country has been importing record amounts of gold as well with the volumes coming in through Hong Kong, which are officially reported figures, climbing to over 100 tonnes in November - and by all accounts gold purchasing in China has been booming since then, so imports are likely to have remained at this kind of level in December and January as well. Estimates have suggested that China's total gold imports for 2011 will have been some 490 tonnes - double that of 2010, but this may well be an under-estimate, possibly a substantial one. _Mineweb
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But -- just as with everything in China -- there is a lot more going on below the surface, which is not officially reported.
China's domestic gold mine output is, without a doubt, much higher than reported. Actual gold mine output could easily be close to 400 tons and possibly more for the following reasons:
The China Gold Association (CGA) numbers reflect production by their members only -- but omit gold mined by non-members. These include many small, unofficial mining operations some of which are illegal existing in the "underground economy". The CGA data also excludes production from mines owned and operated by the military, which is significant according to sources. Not to be overlooked is by-product output from copper, silver, and other metal mining activity. Again, this is significant though hard to know just how significant.

In addition to mine output, analysts and commentators seem to forget about secondary supply -- that is from recycling of jewelry, investment bars, and industrial scrap. Just to get an "order-of-magnitude" possibility, in recent years global secondary supply from scrap recycling has contributed roughly one-third of total worldwide supply. If scrap contributed only five or ten percent of China's total gold supply it would still be quite important.

Next, Western analysts are estimating that China's total gold imports last year were around 490 tons -- but no one talks about "illegal" imports -- that is gold smuggled into China. We know smuggling is quite significant in some countries -- Vietnam and India, for example. We can only imagine how many tons of gold in the form of tael bars, wafers, coins, investment-grade jewelry, etc. is carried into China each year by travellers and professional smugglers.
Beijing is gearing up for this October's 18th Party Congress, the beginning of big changes at the top of China's party and governmental structure. Such changes in government are usually a cue for capital flight from the celestial kingdom. Given the prohibitions against moving cash out of China, gold is becoming an important means of moving capital overseas.

Legitimate imports of gold into China amount to hundreds of tonnes. But illegitimate imports -- gold smuggling into China -- is likely to reach significant amounts as well. (more)

Other nations experience serious levels of capital flight include Russia, Syria, Mexico, Argentina, India, Venezuela, Iran, and a large assortment of third world dictatorships and quasi-dictatorships.

India imports even more gold than China -- at least officially. And gold smuggling is alive and well in South Asia, as in East and Southeast Asia.

Demand for gold is quite high, globally, for a number of reasons -- not least of which are Europe's twin disaster of debt and demographic decline, nor Obama's ongoing war against the US' private sector and energy producers.

This information should tell you something about popular global sentiment toward the current crop of national and international leaders. Trends are likely to continue until something remarkable occurs to change them.

A word of caution: Don't get caught up in the oil hoopla! Oil is not gold, nor is oil a reliable store of value. That is because oil can be substituted in many ways. (much more on this at Al Fin Energy) Gold has no such substitutes.

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Blogger Audacious Epigone said...

Pardon my ignorance on this, but what are the industrial uses of gold outside of aesthetics (jewelry, architectural trappings, etc) and as a store of value (bullion) (or I suppose a mix of the two, like gold coins)?

Wednesday, 08 February, 2012  
Blogger al fin said...

Gold is a very good conductor for high quality electronic contacts.

It is used in medicine to treat arthritis, and more commonly to treat cancer. Implanted prosthetics are sometimes coated with gold.

It is used in dentistry for caps etc.

It is used in space satellites for wiring and contacts.

And more ...

It is not consumed by industry nearly so quickly as silver or platinum.

But gold does tend to hold its value better than the Obama dollar.


Wednesday, 08 February, 2012  

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“During times of universal deceit, telling the truth becomes a revolutionary act” _George Orwell

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