China urges citizens to buy gold and silver

People in North America and Europe are used to seeing plenty of advertisements for gold and silver — from opportunists urging people to get rid of their “useless” gold and silver for cash!

Clearly, this is a bullish indicator for the market, as these companies wouldn’t be spending large amounts of advertising dollars to hype “scrap” sales, and then even more money buying the metals if they didn’t see the opportunity for big profits.

It turns out there is “advertising” for gold and silver in China, too. The big difference here is that it is China’s government which is advertising the “opportunities” in gold and silver and it is urging the Chinese people to buy gold and silver.

An article from mining website Mineweb quotes a programme which appears on China’s largest (state-owned) television company, promoting bullion-buying in general, but stressing that silver is currently the best value for investors.

China has introduced its first-ever investment opportunity for silver bullion. The bars are available in 500 grams, 1 kg, 2 kg and 5 kg with a purity of 99.9%.

It is only in the last three years that the Chinese government significantly relaxed the rules for precious metals buying for its citizens. Given that the Chinese people (like most of Asia) already had a greater appetite for gold and silver than people in most Western nations, the explicit urging by the government itself for people to load up on bullion clearly implies the expectation of a  strong future for precious metals.

With a population greater than 20% of the world’s total and an abundance of savings, this could easily become a self-fulfilling prophecy — especially given the tiny size of the precious metals market, relative to many other commodities.

It is also clear that China is literally “putting its money where its mouth is.” China has devoted an enormous amount of resources building up its domestic gold mining industry, soaring to number 1 in the world this decade, and it recently stunned the world with the announcement of a huge increase in its official, national holdings.

China’s gold reserves jumped by 76% from its last announcement in 2002 — up to 1,054 tonnes. Given that official government purchases on the open market are recorded and announced, this means that rather than buying all that gold openly on the market (which would have driven up the price while they were buying) China has been accumulating gold surreptitiously, through buying up its domestic production — strongly suggesting that ramping-up its gold production was part of a long-term strategic plan to become one of the world’s largest holder of gold among governments.

There appear to be two, related goals in this strategy. Most obviously, the Chinese government is now spending its US dollar-holdings faster than it is accumulating them.

This is no surprise, given the increasing rhetoric (and intensity) expressing concern about the reckless fiscal policies of the US government — and its worries over the future value of its vast accumulation of US dollar-based debt.

The second goal which the Chinese government appears to be moving toward is having its own currency, the renminbi, replace the US dollar as the global reserve currency. There have simply been too many actions on this front to list them all.

However, some of the more significant initiatives are bilateral trade agreements (which exclude the use of USD), currency swaps with trading partner (substituting the renminbi in bilateral trade), and authorising its principal, coastal exporting cities to begin conducting most or all of their trade using renminbi.

These initiatives are entirely separate from the buying spree the Chinese government has been engaging in, dumping US dollars for a vast assortment of “hard assets” — primarily commodities and commodity-producers.

Whether the official urging by the Chinese government for its citizens to buy precious metals is merely prudent, “fatherly” advise to its citizens, or part of a somewhat more sinister campaign the result will be the same: soaring precious metals prices indefinitely into the future.

With gold and silver having just broken out above their summer (the weakest season) trading ranges, precious metals appear poised for spectacular runs this fall. Those who have continued waiting for cheaper prices have been shut out of this market (notably the price-conscious buyers in India).

The writer is editor of bullionbullscanada.com and can be reached at j.nielson@shaw.com 
This is a condensed version of an article that appeared on http://www.bullionbullscanada.com/index.php?option=com_content&view=article&id=2545:china-urges-citizens-to-buy-gold-silver&catid=48:gold-commentary&Itemid=131.
Reprinted with permission of the author.