Why China Will Soon Rule the Gold World

Commodities Emerging Markets Gold
by 

Here were the top five gold-producing countries in 2011:

  1. China (355 tons)
  2. Australia (270 tons)
  3. United States (237 tons)
  4. Russia (200 tons)
  5. South Africa (190 tons)

 Now here’s a list of last year’s top gold consumers:

  1. India (933 tons)
  2. China (811 tons)
  3. United States (194 tons)
  4. Germany (159 tons)
  5. Turkey (144 tons)

Notice a theme? Yes, China loves its gold. India and China have long been the two biggest gold consumers in the world. Between them, the two largest countries in the world consumed more gold last year than the next 15 countries combined.

But India doesn’t produce gold the way China does. No one does. What’s more is that China’s demand for gold is climbing at a time when India’s is declining. China’s 2011 gold consumption was 22% higher than it was in 2010. India’s consumption fell off 7% year to year.

China’s gold production also increased slightly last year. But even having produced the most gold of any country in the world in 2011 and holding another 1,900 tons of gold in reserve, according to the U.S. Geological Survey, China’s thirst for the yellow metal still is far from quenched.

Despite the wealth of gold China has at its fingertips within its own borders, it was still the No. 1 importer of gold last year – knocking India from its usual perch as the world’s most prolific gold buyer. That shows that demand for gold in China has reached a point where it far surpasses even its world-leading supply.

India is still king of the gold market. But it might not be long before China knocks its Asian neighbors from the throne.

So what does this all mean for the average American commodities investor? That China’s currency may soon be effectively backed by gold. At a time when currencies around the world are flimsier than a rain-soaked dollar bill, China appears to be stockpiling enough gold to make the yuan the most trusted currency in the world – and perhaps make it more mainstream on the global market.

In addition, China may be attempting to wrest control of the gold market away from London and New York.  We also know that the Industrial and Commercial Bank of China (ICBC) opened a bullion futures trading market this year.

It all paves the way for China to reclaim its standing as the dominant economic force in the world. As China continues to produce, import and limit exports of gold, the less important and influential its counterparts in the west become.

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