Gold Soars as China Buys Record Gold: To Overtake India as Top Physical Buyer

Gold is approaching new highs and has risen substantialy in recent weeks. Gold prices jumped 30% in 2010 (in USD) and reached an all-time high of $1430.95.
A contibutor to this situation is China, where demand for physical gold and gold-related investments is growing at an explosive pace and "its appetite for the yellow metal is poised to remain robust amid inflation concerns", says a Reuters report, citing said an Industrial and Commercial Bank of China (ICBC) executive.

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ICBC is actually the world's largest bank by market value, sold about 7 tonnes of physical gold in January this year, nearly half the 15 tonnes of bullion sold in the whole of 2010. The bank says they are seeing explosive demand for gold as Chinese get wealthy and look to diversify their investments. Gold is also a  hedge against inflation..

"There is also frantic demand for non-physical gold investments. We issued 1 billion yuan worth of gold-price-linked term deposits in 2010, but we managed to sell the same amount over just a few days in January this year," the bank's Zhou said, also adding that such deposits would easily exceed 5 billion yuan ($759 million) this year.

"Gold imports into China soared in 2010, turning the country, already the largest bullion miner, into a major overseas buyer for the first time".

China Overtaking India as Gold Buyer

What is quite notable is that this move puts China on track to overtake India as the world's top gold consumer.

Mr. Zhou also said China's gold demand could grow at a stronger pace this year, with volatile stock markets and moves by the government to rein in property speculation and purchasescausing more investors to move  their cash into bullion.

"Unlike the property market, investment in the gold sector is something the government is encouraging,"
China has encouraged retail consumption and announced last August measures to promote and regulate the local gold market, including expanding the number of banks allowed to import bullion.

"China has a centuries-long cultural attraction to gold and because we have started at such a low base, I think demand growth will likely stay strong for quite some time,"

Mr. Zhou said there was also voracious demand for silver, with the bank selling about 13 tonnes of physical silver in January alone, compared with 33 tonnes in the whole of 2010.

The scale of China's gold demand, which has increased on average at a double-digit clip over the past decade, has caught the market by surprise. Data showed China imported 209 tonnes of gold the first 10 months of last year, versus 333 tonnes by India for the whole year.

The bank on Tuesday launched its second physical gold investment product, which sells gold bars to investors, which can be resold for cash through ICBC based on real-time gold prices.

The WGC said ICBC's introduction of this gold investment could lift China's gold retail investment by 10 to 15 percent in 2011 from about 170 tonnes last year".