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China's Demand for Precious Metals Explodes Due to Concerns Over Inflation

Written by Roman Baudzus

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Roman Baudzus writes --

The Industrial and Commercial Bank of China (ICBC), the world's biggest bank in terms of market capitalisation, announced in a statement yesterday that China's demand for gold literally exploded in 2010. Especially the middle class was eager to diversify its assets in order to hedge against the monthly rising domestic inflation. The majority of gold investors focused on physical gold purchases.

As Zhou Ming, deputy director of the precious metals division at ICBC, told the news agency Reuters yesterday, his institute sold about 15 tons of gold to domestic investors in 2010. It was remarkable that the physical demand among investors had already reached 7 tons in January 2011. So far, all data pointed to a new sales record in 2011.

Zhou explained how China's savers and investors were highly concerned about the drastically rising inflation of the last few months. The central bank People's Bank of China (PBC) had not yet managed to slow down the escalating credit growth among China's domestic banks. The PBC's credit growth target had been highly exceeded in 2010, just as in 2009.

China's gold imports also surged drastically in spite of an 8% increase in the country's gold production. Despite being the biggest gold mining country in the world, China is now advancing to become the world's biggest importer of gold, too. Analysts stated that China would replace the gold savvy India as the world's biggest importer of the yellow metal in the near future.

As Zhou further stated, China's government encouraged the population to make investments in the gold sector, while further liberalising the domestic market. The gold price should therefore expect further support. Zhou explained that the demand in China had started from such a low level that huge growth rates could be expected over a longer period of time. The government hopes that its strategy will slow down future demand in the property sectors of the country's urban centers in order to prevent the bursting of a potential price bubble at the housing markets.

Not only the demand for gold but also for silver had risen strongly in the past year. While the ICBC sold a total of about 33 tons of the white metal in 2010, the physical sales had already reached 13 tons in January this year. Based on the current developments, new sales records were expected in the silver sector as well.

SOURCE: Roman Baudzus

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