...the latest announcement from Coeur d’Alene Mines on its deal to have its gold concentrates purchased and processed by China’s largest gold producer suggests that precious metals are on China’s vast shopping list too.
What is significant, perhaps, is that this suggests that China’s commitment to gold is both ongoing – and likely to increase. The country, through its financial institutions and state television advertising, has been persuading its ever growing middle classes to purchase gold (and silver) as a good investment. There seems little doubt that the state is doing the same thing itself as a means of diversifying its huge reserves.
China’s appetite for gold just cannot be satisfied by its still growing domestic gold mine output – as we noted above already the world’s largest.
If indeed it is China’s plan to increase its gold holdings, but while maintaining an orderly market in the yellow metal, it is a smart move. The main reason, almost certainly, that China did not buy the IMF gold on offer – or even a large hunk of it – would be that to do so would have sent a very overt signal to the market and that the gold price would have skyrocketed as a result. Such a movement in the price might have been seen on global markets as a vote of no confidence in the dollar – and with China’s huge dollar-related foreign exchange holdings this would not suit its long term economic policy either.
To buy newly-mined gold production at source is thus a clever ploy. It is not interfering with the gold market directly by being seen to buy, but picking up gold which is actually never reaching the market. It can then move the gold into some interim holding capacity which does not have it showing up in its official reserves until, and unless, it wishes to make this statement to the markets. The fact that, as a result, less gold is actually reaching the market has a substantially smaller impact on it than the overt purchasing of bullion itself.
The move has to be seen as long term bullish for the gold price and is yet another way of limiting downside risk for gold investors.