Wednesday, March 9, 2011

Chinese Demand Swallows Up Almost Half Of Gold Production In First Two Months Of This Year

That's a pretty impressive figure, had it not been for the fact that added production only adds a small increment to the worldwide gold stock. What's prompting it is rising mainland Chinese inflation, itself a product of both monetary stimulus and the fiscal stimulus from two years ago.
The Chinese government has already made some big moves to keep domestic inflation from spiraling out of control:

  • raising interest rates multiple times;
  • toughening price-fixing rules;
  • tightening lending requirements and raising the minimum down payment people need to buy a home.
So far, none of these measures have managed to curb inflation. Fears of uncontrollable inflation — even hyperinflation — are quickly circulating throughout the Chinese economy.

This has prompted a rapidly growing number of China’s 1.3 billion citizens to start devouring gold as wealth protection.

The question of how long it can last still remains, but the trend's a solid one. Although inflation is a cause, some of the demand comes from tradition.

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