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SOVEREIGN MAN

Gold mania in China

Gold is quickly reaching the mania phase in China, and there are clear signs of it on the ground.

About a month ago, we reported that for the first time ever, the Chinese government is promoting gold and silver as investments.  And by “promoting,” we meant cramming it down people’s throats.

We knew this was ground-breaking news at the time– a clear indication of long-term demand growth, as well as a sign that the government will be accepting higher inflation in the future.

Ironically, this story was little noticed in the gold industry at the time, mostly because the information was only being circulated in China (in Chinese, for that matter).  Fortunately, my friend and China insider Christine Verone was able to get me the scoop, and we ran it here first.

Since that report, three things have happened;

First- the mainstream media has latched on to the story about Chinese gold… Forbes, Moneyweek, Reuters, the blogosphere; it’s out there now, and adding a bit of extra buzz to the gold market.

Second- the government has stepped up its promotional campaign, and Chinese consumers have responded on cue. Gold demand has grown dramatically just this year, particularly as savvy local investors are starting to view Chinese stocks suspiciously.

Third- and perhaps most importantly, Christine literally made history by becoming the first foreigner EVER in China to be certified in any professional capacity by a Chinese commodity exchange.

I’m looking forward to all the great information that Christine will be able to share with me about Asia’s gold markets when she’s not tied up making deals in Mongolia or working with bankers and offshore trusts in Singapore and Labuan.  In the meantime, the two of us had quite an interesting tour of Chinese gold shops.

You can buy gold in China at any bank– even tiny banks in tier-3 cities sell gold. The government has also set up official Chinese Mint stores all over the country.  On the inside, they look like jewelry shops– armed guards, glass viewing cases, etc. But instead of diamond crusted earrings and white star sapphires, you see bars. Lots of bars.

The government mints bars in sizes ranging from 5 grams (which are so tiny they’re actually cute) to 1 kilogram. The prices are updated instantly– they have a Bloomberg screen which tracks the spot price, generally indexed to the Renminbi price in Shanghai rather than New York or London (another sign of Chinese financial independence).

The bars are all serialized and 9999 purity, the same as you would get from Switzerland.  They are also certified by the gold exchange, which validates the quality. The premium runs 10 renminbi per gram, or roughly $30 (US) per ounce.

We went into several stores and saw Chinese people buying like crazy… all with cash. The most popular denominations were 10 grams and 50 grams, as well as every piece of jewelry in sight. I’m surprised the mint shops didn’t sell out at the inventory was flying off the shelf.

Christine has some great contacts at the shop across the street from the Westin Hotel– if you take a taxi there, ask for the WEE-stin (that’s how they say it) and you will see the shop on the opposite corner. Ask for Gao Ping, he speaks great English.

Given the ultra low cost, storage options (that I will get into later), and ease of transport, China is a great place to buy and store gold… especially if you find yourself there for business already.

And remember, if you are a United States taxpayer, one of the best ways to buy gold is through a self-directed IRA. You will be able to hold physical gold (and even store it overseas), all through your tax-deferred retirement account.

In my opinion it’s an absolute no-brainer. The above link is to an interview we conducted with an agency that sets up these self-directed IRA accounts, and I think you’ll find it incredibly informative.

About the author: Simon Black is an international investor, entrepreneur, permanent traveler, free man, and founder of Sovereign Man. His free daily e-letter and crash course is about using the experiences from his life and travels to help you achieve more freedom.

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Comments on this entry are closed.

  • tool

    Why is the chinese government marketing gold? What benefit would it have to them vs a renminbi bank account?

    • Jackrilyesq

      why is the chinese govt promoting gold….good question. I think it’s simply as a secure store of value because the rmb is so tied to the usd and the chinese/us economies are tied, too…it’s a hedge. Keeping people happy is really the name of the political game in china.

  • Rob

    Does not surprise me. With the debt levels in the US fastly approaching 100% of GDP can you really blame China for not wanting US treasuries and moving their money elsewhere?

    Were getting exaclty what we wanted as a country, debt, debt, and more debt to make it easier for everyone who perfers wants the government to control their lives while those of us who bust our butts pay for it.

  • JL

    Simon,
    You are spot on with your China Gold phenomena. I live in Suzhou (tier 2 city 50 miles West or 35 min minutes by bullet train). You can buy gold at banks and Gold shops that sell jewelery / gold bars etc… I haven’t seen the ads on tv but I don’t watch Chinese tv but interestingly before you ran your report I spoke to my girlfriend about buying gold and she listed the banks (which are everywhere) and I’ve been in the gold shops that you’ve described and they they have people lining up. But I will say that most people that I’ve spoken to her from business to regular folks understand the imprtance of gold of combatting inflation and maintaining wealth.

    My actual question is which bank does Christine recommend to get a safety deposit box and open a bank account for a rainy day. I’ve talked to locals and they don’t trust banks because it is easy to steal bank card info so I have been advised to only keep enough to pay for online purchases. To be honest I haven’t bothered because I can buy cheap enough flights with http://www.ctrip.com and http://www.elong.com (an expedia venture). I would be interested in leaving my safety net in China, Hong Kong etc… as long as it somewhat safe. Do you really trust the Chinese enough to leave a safety net here. Or do you trust the US not to piss them off and push them to do something drastic. Actually, I am Canadian working for a US company and am applying for a greencard (a process started years ago).

    I’ve been following your work since WoB and really look forward to reading your daily letter.

    Best regards,
    JL

    P.S. I work in manufacturing and I can say that in most industries automotive, aerospace, machining, etc… came to a halt a few months ago. Now things are picking up, some companies can’t keep up. It is getting common for us in manufacturing to find semi-skilled labor right now. I, and my expat friends, are have extreme difficulties finding decent engineers. Then it is even more tough to keep people, but that is another story.

    P.P.S. even in the worst of this recession there was a big slump in spending at mall, restaurants, hair salons, massage etc… but it was difficult for us foreigners to see it because there are so many places that looked jam packed with people becuase of shear number of them. All the Chinese would say, “what recession, it’s not affecting us” because of Chinese pride. However, when talking to small business owners (myself, friends, and my Chinese girlfriend) we could hear the stories of business going down. But this was nothing compared to SARS!!! So most entrepreuners are still happy. Manufacturing got weak, perhaps some closed shop but many international companies weathered the storm and took furlough days- maybe a week or two. I work for conglomerate and the subsiduary companies in the US and UK were closed for at least 1 month and laid-off 20-30% of the work force. Very freghtening because I worked some of these plants before.

    P.P.P.S. I lived in California, 50miles of LA from 2005-2008 years before moving out here and everybody told me to buy real-estate. I didn’t and I turned better not buying. People in Suzhou are talking the same way that the CAers did, “it’s safe”, “it won’t go down”, etc…this after a tremendous run-up. The amount of cosntruciotn is absolutely mind boggling. The buildings are half-full and they are building more. It is not like the US where they build 2-3 towers but rather 10-20 at a time.

    Anyways, I’ve rambled enough.

    • Bernard Smits

      Hello JL
      Thank you very much for your above ramblings it is what people like me who like to know what goes on in other parts of the world
      have great difficulty in finding out.You are particularely interesting in that you work and seem to move in areas that are not connected with the tousist industry.I have been in China 3x but have had some difficulty in finding some of the simple things you told us. The ‘Chinese pride’ is a formidable obsticle . They will insist that the bus leaves at 10.00am. when one bl…well knows that
      it will not leave untill it is full.
      What about creating a web site and tell us how things are going as per above say once a month??
      Thank you again for taking the trouble,
      Bernie Smits

  • Pingback: TheTradingReport » Blog Archive » Why China Wants Its Citizens to Buy Gold

  • Hal (GT)

    Thanks for covering this issue with China. I did see it about two or three weeks ago. I consider it very big news that forecasts China’s future position on gold.

  • John W

    Great article – thanks! (thanks also to JL for his excellent information!)

  • jason

    this is jason from the united states. i would like to get in touch with JL. so JL if you see this i would like to talk to you. thanks, jason

  • Scott M.

    Thank you so much for this information Mr. Black.

    It seems like the nature of the game going on in the US/European market has been one of covering vast losses with paper while the, it would appear, entirety of their financial institutions plot/plan out the motion of a historically enormous M and A. It seems the little bankster fish are dying on the vine (see: 94 FDIC endings as the yesterday) with many more on the hit list. Good riddance.

    With all this politically supported covering going on, and the ensuing media propaganda, I have been watching the indicators with relish and have come to believe that the best of these indicators are coming out of the BRIC. Russia and China appear to be gearing up for a tidal change from west to east. For these leaders of the SCO to “recommend” a change to a more diversified reserve currency and now your “street-level” information concerning China’s private populace lining up to acquire the available metals market it gives another piece to this puzzle.

    Chinese policy makers appear to have given up on the fidelity of US paper contracts (at least overtly) and are encouraging a grass roots effort to pull as much metal and resources into their nation as will compensate them from a vast collapse of empty western promises.

    It’s invaluable to get insight into how enthusiastically the Chinese people are following these savings suggestions. Has anyone found an English language site that might be monitoring the totals and/or deltas of these private Chinese purchases over the last, say, 10 months?

    Again thank you very much! (Also thanks JL for the further insight- I was aware of the building of empty/nearly empty high rises in many major Chinese cities and just chalked it up to another excuse to bring resources, of any kind, into the national fold while keeping a political lid on the potential collapse of contemporary market structure- a la US propaganda. “May you live in interesting times” is becoming a strong object lesson it seems.)

    Scott

  • http://www.indiantrailjewelry@yahoo.com Judy

    Dumb question, you say that the premium runs roughly $30 per ounce, what do you mean by “premium”? Is that the same thing as the spot price?

  • jason

    judy,

    He means spot + $30

  • http://cartegold.cz.cc Carte Gold

    Excellent! Great article, I already saved it to my favourite,

  • http://www.suzy.nu/ Suzy Lounge Bar

    This is very interesting. Great post. Hope to see more of you’re post.

  • http://www.hotfrog.com/Companies/Atlanta-Gold-and-Coin-Buyers Atlanta Gold and Coin Buyers

    I don’t think so Chinese need to promote the business about the Gold and silver investment, they are very nice in every field and they have gain some great business aspects in comparison to other country. Thanks anyways for the information.

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