China Goes Gold Crazy. Why Now?
As Chinese emptied the shelves in their own country, they also went south and swarmed shops in Hong Kong, sometimes in groups. Chow Tai Fook, the world’s largest jeweler by market capitalization, said some stores popular with Mainland Chinese ran out of gold bars and that demand had not been as strong since the late 1980s.
Demand for “9999” bullion—99.99% pure gold—was five times normal according to Haywood Cheung Tak-hay, president of the Chinese Gold & Silver Exchange Society. His organization effectively ran out of holdings as members tried to meet supply shortfalls. “In terms of volume, I haven’t seen this gold rush for over 20 years,” Cheung told the Financial Times. “Older members who have been in the business for 50 years haven’t seen such a thing.”
What’s behind the unprecedented surge in buying? Obviously, the Chinese took advantage of a dip in prices—the deepest since 1983—but they kept on buying as the commodity clawed back some of its losses.
Unlike the Japanese, they cannot be worried about a plunging currency. Nor can the Chinese be troubled by climbing prices. For one thing, the consumer price index has been signaling lower Chinese inflation in the months ahead. In March, the CPI increased just 2.1% from a year earlier, compared to a 3.2% rise in February. Of special importance were food prices, up 2.7% last month versus a 6.0% spurt the month before. In Q1, prices increased just 2.4%, about the same rate as the previous quarter.
Although Beijing’s CPI undoubtedly understates inflation, it nonetheless shows a general weakening of price pressure, something mirrored in the continually falling producer price index. Because China is still a manufacturing-based economy, the fall in the PPI means the country is actually suffering deflation. Producer prices fell 1.6% in both January and February and 1.9% in March.
Moreover, the global sell-down on the 15th—stocks took a beating too—would have been worse had analysts focused on Chinese electricity statistics, manufacturing indexes, and corporate results, all pointing to an economy growing not at 7.7% but in the low single digits.
Especially at the top. On Thursday, Chinese state media reported that the Politburo Standing Committee convened a special meeting to consider the economy. Normally, the body takes up economic matters only at fixed times, the beginning, the middle, and the end of a year. The last time it met to discuss the economy in an April was in 2004.
No wonder the Chinese are now stockpiling shiny yellow ingots, coins, and bracelets.