China, gold, and the West

Dismiss gold if you will as an irrelevant artifact of a much simpler time, but do so at your own peril. Paper money and "innovative" financial products in the West are looking more shaky every day and the phrase "like a run on the bank" is being heard with alarming regularity. Even the word "freeze" has crept back into the financial vocabulary in ways very different, but even more alarming, than it did in the 1970s.

Three reports over the last two days tell yet another part of the story about how the yellow metal is becoming more important and more popular in China while Western countries seem to have little use for it.

Amid talk that the Chinese government may try to buy mining giant Rio Tinto comes word that there is at least one abundant natural resource on the mainland.

China may pass South Africa as leading gold producer
Australia’s leading gold production monitor, Surbiton Associates, believes China may take South Africa’s historic position as the leading global gold producer by the end of this year. Australia will hold third ranking because of sliding production in the US.

For the first nine months of 2007, China's gold production totalled 191.5 tonnes, which was just behind South Africa's declining total of 192.7t, and could overhaul the latter in the final quarter of the year.

If you were a hard-working people who labored endlessly in exchange for a currency that was essentially pegged to the U.S. dollar, you'd probably want to exchange some of that paper money for something more tangible too.

China Gold Jewelry Demand Surges Ahead of U.S.
China's demand for gold jewelry may increase by about 20 percent this year as rising personal incomes help it to race ahead of the U.S. as the world's second- biggest market, researcher GFMS Ltd. said.

Gold use in jewelry in China jumped 24 percent from a year earlier to 221 metric tons in the first nine months, GFMS analyst Veronica Han said by phone from Beijing yesterday, citing data compiled for the World Gold Council. That compares with 515 tons in India, the biggest consumer, and 165 tons in the U.S.

Increased jewelry purchases by consumers in China and India, the world's fastest-growing major economies, may help to support the price of gold, which reached a 27-year high of $845.84 an ounce on Nov. 7 and is headed for its seventh annual gain.

Meanwhile, the West continues to sell gold, seeing little need to keep the stuff in their vaults even after the evolving melt-down of modern-day financial products backed by modern-day paper money.

ECB Sells 42 Tonnes of Gold in November
The European Central Bank (ECB) surprised the market today with the announcement that it had completed the sale of 42 tonnes of gold on Friday with no previous indication. After announcing sales of 60 tonnes in the last agreement year, the ECB was thought to have concluded gold sales for the time being.

“It wasn't previously announced, though they have sold gold in December before,” said Matthew Turner, commodities analysts at Virtual Metals.

The sales were in conformity with the Central Bank Gold Agreement of 27 September 2004, which limits combined annual sales by E.U. central banks to 500 tonnes a year until 2009.

According to the World Gold Council, 103 tonnes have been sold thus far in the fourth agreement year.

Maybe Jim Rogers is right when he says: Put Your Money Where His Mouth Is: in China.

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