China will allow import and export of Gold by Foreign and local players. This may well trigger another round of rally for Gold prices around the world. China is the second largest consumer of gold after India and eyes the first spot in near future.
Chinese market is very important gold market and any shift in policy by Chinese government will effect Gold markets everywhere.
Demand for gold has risen sharply in China with expansion of its middle class. Gold is said to bring prosperity and is look upon as a symbol of good luck in countries like in China and India. Families value gold too much and substantial quantity of gold has to be transacted in every marriage which is a tradition now. This is why India remains the largest consumer of gold in the world.
But China may soon go past India with opening of its gold markets. According to a report by Reuters, although China is the world’s largest gold producer, it still requires imports as demand can easily outstrip domestic output by more than 100 tons annually. Reuters says that analysts say China wants more banks to trade with overseas counterparts, reduce their reliance on the Shanghai Gold Exchange for hedging and invite more foreign banking institutions to trade on the Exchange, where trading volumes have risen by more than half in the first half of this year.
China’s share of global gold demand jumped to 11 percent in 2009 from 5 percent in 2002, when the Shanghai Gold Exchange opened, and consumption is likely to double in the next decade from around 420 tons as income grows, the World Gold Council says. More foreign firms are likely to become members of the Shanghai Gold Exchange and analysts also expect Beijing to ease curbs on gold investment products such as exchange traded funds.
China may try to increase the gold reserves eventually increasing the demand for the gold but this may not be possible for Chinese Government to do as it has to fulfil high rising demand for domestic consumption of gold.
There is one thing very obvious that is happening in China and to some extent in other parts of the world that is retail investors to big institutional investors all are moving from equity and property market to gold market which they think is safer and better hedge. Gold is set to be in demand for many years. High consumerism for gold by India and China would keep them a attractive investment. But the real test of sustainability of gold prices will be when equities market start the long rally again after recession gets over.
