March 03,2009

Gold Retail Buy-Back Surges across China

By Leanne Wang, Shanghai
The gold rush has gone global, but the flight-to-quality is taking different forms in different markets. While the US and Europe are experiencing a surging demand for the glittery stuff itself, investors in China have been stepping up the monetization of their bullion reserve since February. The stark contrast reflects investors�different confidence levels towards their countries�monetary and financial systems.
One shopping mall in Beijing purchased back more than 100 kilograms of gold in February, among which bullion weighing over 1000 gram counting for more than 30 per cent, the manager of its gold department told local media. She said the mall’s average monthly buy-back is normally below 20 kilograms.
Gold prices have surged by more than 30 per cent since October, creating an opportunity for investors who bought at lower prices to cash out.
One customer of that mall took home a net profit of RMB 214,300 after selling six pieces of bullion of 1000 grams each in mid February. The customer bought at RMB 165.60/gram and sold at RMB 213.33/gram.
At China Gold Group’s flagship store in Beijing, the general manager noticed that in February’s heated gold buy-back quite a few customers sold gold of up to 30 kilogram in weight, something the retailer had never seen before.
Local media reported that, on February 2, a 20 meter-long queue was waiting at the store to sell their gold. The GM said, "We prepared more than RMB 20 million to buy back gold for that day, but the money was all used up in the morning." On that day, the store repurchased more than 230 kilogram of gold, at value of RMB 50 million.
Concurrently, the gold buy-back is happening across the country.
In Wuhan, a second-tier city in central China, a manager of a gold retailer said that buy-backs have increased by 50 per cent since the Chinese New Year compared to normal months, with rising gold prices depressing sales and sales surpassed by buy-backs. 
In Hangzhou, a medium size city close to Shanghai, branches of the Industrial and Commercial Bank of China (ICBC) and China Merchants�Bank have also been buying back physical gold from customers eager for profit when gold rose above US$1000/ounce recently.
An ICBC branch in Zhejiang province has purchased back 2710 grams of gold, up by almost 400% over January, while that branch saw zero buy back in some months last year.
Beyond the Pacific, higher gold prices haven’t curbed the appetite of retail investors for bullion coins. The US Mint has sold 193,500 ounces of American Eagle gold coins in the first seven weeks of 2009, equal to its shipment total for the whole of 2007 and the first six months of 2008.
Similarly, in the latest report released by the World Gold Council, gold bar and coin demand in Europe increased to 114 tonnes in the fourth quarter of 2008, up by 1,170% compared to the just 9 tonnes in same period the previous year.
Though market participants across the globe have little to complain about in the upward trend of the gold price amid a deteriorating world economy, and at least this market is forecast by hardly anyone to tumble, the difference between Western and Chinese retail investors�response to rising gold seems to reflect their different confidence levels towards their countries�monetary and financial systems.
Most investment banks have upgraded gold price forecasts for 2009 and 2010, betting on the world’s major currenciesâ€?debasement led by the USD, as well as expectations of inflation in a few quarters as a consequence of governments continuing to oversupply liquidity to the stimulate economies.
It is also widely believed that the inverse gold/dollar relationship will be back in place in the near future when the greenback loses its appeal as a safe haven against the global currency crisis.
This scenario has the dollar and a basket of currencies depreciating against gold, but not the unconvertible RMB, still seen as under-valued by many governments and economists in the West.
Meanwhile, while China’s economy has been hurt, especially in the export sector, the country’s banking and financial system appears sound enough to support its economy back onto the fast track.
Chinese consumers are feeling no need to hedge the purchasing power of RMB by holding onto gold, and instead are, selling off with the price flirting with US$1000 per ounce.

(Leanne Wang is a journalist based in Shanghai, email:


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