China Gold Scam Could Translate Into Higher Demand
(Kitco News) - While this has not been widely reported in the Western media, news broke this week of a massive illegal gold-futures trading scam in China. Not only does it underscore the growing hunger for gold among the newly minted Chinese middle class, but also hits home the rationale for owning physical gold, according to one U.S. based asset manager.
Over 5,000 investors were bilked out of 380 billion yuan, or $59.62 billion in a scheme involving Loco London gold since 2008, according to a report in the China Daily.
While details are unclear how the scam worked, the implications could be bullish for gold in a number of ways. Perhaps gold prices could be at even higher levels than they are right now, if this money had been properly invested.
“That is obviously a very significant amount, this is an enormous scam,” said Adrian Day, president of Adrian Day Asset Management. Looking ahead, Day noted that “It might make Chinese investors turn towards the physical rather than esoteric contracts.”
“I don’t think it will make Chinese people not buy gold, it will just make them want to buy physical gold and keep it,” Day said.
The newly minted Chinese middle class has a natural cultural affinity towards gold, it is a cultural distinction that many Westerners underestimate and perhaps don’t appreciate.
Looking at the most recent physical demand information available, gold demand in China skyrocketed to record levels in the first quarter of 2012, according to a report from the World Gold Council.
Additionally, China is expected to overtake India as the largest market for gold this year.
Consumer demand in China surged by 10% to hit a new quarterly high of 255.2 tonnes, according to the World Gold Council’s Gold Demand Trends first quarter 2012 report.
Additionally, Chinese consumers were active buyers of gold jewelry in the first quarter, buying 156.6 tonnes, accounting for 30% of global jewelry demand, according to World Gold Council. That is an 8% year-over-year increase. Rising Chinese income levels are a key factor seen.
“Chinese gold demand is on track to expand by seven percent to 870 tonnes this year. On its current path, China will likely surpass India as the single largest market for gold in 2012,” said Marcus Grubb, managing director at the World Gold Council.
“Gold demand in China has grown consistently over the past several years driven by the liberalization of the Chinese gold investment market, the introduction of innovative gold savings accounts and a strong interest from Chinese citizens in buying gold to preserve wealth,” the World Gold Council’s Grubb added.