While the international gold price in February hit the highest point in 25 years at $541.20 per ounce for futures delivery, a new gold rush is sweeping across China.
　　According to the World Gold Council, the London-based gold marketing organization funded by leading global gold mining firms, the purchase of gold products in China grew by 9 percent in the first nine months last year. During the Spring Festival, China’s lunar New Year holiday, which fell in late January and early February, sales at gold stores were even stronger as gold products are favorite choices for gifts among family members, friends and relatives. In traditional Chinese culture, gold symbolizes auspiciousness and fortune.
　　“The strong economy, the success of K-gold (18-carat gold with Italian-inspired design) and the growth in the number of people willing and able to buy high-quality jewelry mean the Chinese should support gold demand growth in 2006,” the World Gold Council said.
　　The Chinese Year of the Dog is considered a good year for weddings, and this should also help the traditional 24-carat jewelry market record good sales.
　　AIG Global Investment Consulting Corp. pointed out that China and India are expected to become the two driving forces of the gold market in the future.
　　
　　Gold rush
　　
　　During the Spring Festival of 2006, a series of gold products titled 99999 sold like hot cakes at big department stores in Beijing. Zhongjin Gold Corp., a stock market-listed company which presented the products, benefited enormously from the sales.
　　Song Xin, Board Chairman of Zhongjin Gold, said gold bullion has enjoyed strong sales in Beijing’s big department stores ever since it was presented in 2002. Eyeing the enormous demand for gold, his company has introduced various gold products to the market, a market he believed would not disappoint.
　　Strong sales have pushed up the price of gold jewelry. According to the sales people of Bai’an Store in Lanzhou, capital city of Gansu Province, the price of some famous brands, such as Old Phoenix, has jumped three times since last October. The price of pure gold jewelry has risen to 158 yuan per gram from 155 yuan, a record high for last year.
　　Sales staff at Chow Tai Fook Jewelry in Beijing’s Sogo shopping center said the fluctuation of the international gold price would exert an impact on domestic retail sales. This time the price of gold at Chow Tai Fook has jumped from 159 yuan per gram to the present 184 yuan.
　　Meanwhile, as the international gold price is expected to rise further, trading in some gold bars and coins is obviously expanding. Gold bullion issued earlier to commemorate the Olympic Games is favored again by consumers, and the price of a gold bar the size of a cigarette lighter has reached $2,000. Staff at Chow Tai Fook said new bullion designs would be presented every year until 2008.
　　Investors hope that such enthusiasm is the beginning of continuous gold consumption growth, not just a brief fling related to the Olympic Games. According to a report of the Gold Field Mineral Service, an internationally renowned precious metals consultancy, income growth is the important reason leading to China’s rising jewelry consumption.
　　The report also says the per-capita income of China’s urban residents grew by 9.5 percent in the first half of last year and is expected to increase further by a large margin in the next 10 years. It estimated that China’s annual gold sales would reach 600 tons in five years and that China would replace India to become the largest gold consumer in the world.
　　More gold reserves?
　　ALL THAT GLITTERS: Gold sales remain strong in China while international gold prices set record highs
　　At the end of last year, rumors that “China’s foreign reserves structure will be adjusted and the ratio of gold will soar” were widespread, and many foreign research institutes believe that China will become a bullish gold market in the future. However, Hu Hu, Deputy Director of the Beijing Zhoutong Investment and Technological Research Institute, said that according to research they started a year ago, this was just speculation.
　　Buying gold as an investment is never a bad idea, said Hu. He also pointed out that the average ratio of gold in foreign reserves of major developed countries stands at about 8.7 percent.
　　Hu said China’s foreign reserves reached $818.9 billion at the end of 2005, but its gold reserves were only 600 tons, producing a ratio of less than 2 percent, according to the People’s Bank of China, China’s central bank. At the same time, the People’s Bank of China holds too many dollar-denominated assets from purchasing American bonds, and such holdings are vulnerable to risks and uncertainties in the future.
　　“If China wants to raise its gold reserves to the world average of 10 percent, the central bank needs to increase holdings by 2,400 tons,” said Hu.
　　Ren Tengtai, head of Galaxy Securities Research Center, said many facts underpin the adjustment of the foreign reserves structure. Buying gold at a low price can be used not only for international settlement, but also to hedge the risk of foreign exchange fluctuations, he added.
　　Hu Yuyue, professor at the Beijing Technology and Business University, said now that China has adopted a managed floating exchange rate linked to a basket of 20 currencies, its foreign reserves structure should be adjusted accordingly. The euro has risen to a strong currency compared to a weakening dollar, and the gold price should reflect the change.
　　Zhou Ziheng of the Chinese Academy of Social Sciences said that the high gold price of $800 per ounce 20 years ago was led by dollar depreciation and the deflation of the U.S. economy, as well as the collapse of other countries’ exchange rates fixed to the American dollar. Now that China has begun to reform its foreign exchange rate, the fluctuation of the gold price is reasonable.
　　
　　Big demand
　　
　　Many people predict that China will become a new gold center in the future and are upbeat about China’s gold market growth. However, though China has a long history of gold trade, its gold market is still immature. Between 1949 and 1982, China banned personal ownership of gold, not to mention a gold market. In recent years, China gradually lifted its control over the gold market. Besides allowing the purchase of gold by individual citizens, it established the Shanghai Gold Exchange in 2003 for professional investors and companies.
　　The Shanghai Gold Exchange launched night trading in 2005, making it possible for traders to conduct arbitrage between the Shanghai and New York markets. Last year, its trade volume soared by 36 percent. General Manager Wang Zhe said the Shanghai Gold Exchange has the potential to become one of the largest gold markets in the world.
　　Some investors, depressed by the stock market, are shifting to the gold market. Last year, the Shanghai branch of the Industrial and Commercial Bank of China teamed up with the Shanghai Gold Exchange to announce the opening of a new trading platform through its “Jinhangjia” (Gold Expert) product, marking the milestone opening of physical gold trading to individual investors.
　　The China Banking Regulatory Commission started to allow domestic commercial banks to sell gold bars and coins to individuals as retail investment at the end of 2004, representing a major breakthrough in the opening of the mainland’s gold market.
　　At Old Phoenix stores in Shanghai, customers who have purchased bullion with special designs can sell them back to speculate. According to company officials, over 10 percent of customers took up this offer last year.
　　Though many international investors believe China will become a large potential gold consumer, Matthew Turner, an analyst of the British consultancy Virtual Metals, said they doubt whether China could play the same role as India, as India’s gold consumption is much higher than China’s.
　　China’s soaring gold output will also check its price hike. Turner said even if China’s gold consumption continues its strong upward trend, its large output might make it a net gold exporter in future years.
　　Statistics from the China Gold Association show that the mainland’s gold output last year rose by 5.51 percent to 224.05 tons from 2004. Lu Wenyuan, the association’s Vice Chairman, predicted that the country’s 2006 gold output would rise by 6 percent or more from last year.
　　Helped by strong gold prices, China’s gold mining sector reaped robust growth in profits last year, amounting to 4.04 billion yuan, surging 32.7 percent from the previous year, according to statistics.
　　Experts said the sector’s profits would continue to grow rapidly this year as a result of bullish gold prices.
　　Meanwhile, gold demand on the Chinese market will also remain strong. The mainland’s gold demand in 2005 totaled 253.1 tons, up 8 percent from 2004, according to a press release provided by the World Gold Council.
　　The demand included 241.4 tons of gold jewelry, up 8 percent year on year, and 11.7 tons in the form of retail investment, up 20 percent.
　　Song Xin of Zhongjin Gold said that gold for investment will become the engine behind market growth and that some Asian countries, such as China and India, may determine changes in the global gold market.

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