Friday, April 2, 2010

China Running Out of Gold?

China's Gold Supply

China has increased gold production in the country in a relatively few years to become the largest gold producer in the world in 2007. That surprised everyone at the time because to do it China's output grew at an extraordinary annual rate of 84 percent.

At that rate of production, the question must be raised as to whether China is going to run out of gold any time soon.

If they continue at the production rate they're currently at, China would run out of gold in about six years. That of course assumed no other gold is found and no mines come online.

But it does take time to get mines ready for production, so the supply of gold in China is going to pull back in the near future, and it's something to keep in mind in the years ahead.

One other interesting factor, is demand for gold in China is growing at a rate of about 13 percent annually, with the majority of that being used for jewelry. India has largely been the retail leader in that area for decades, and it didn't have much effect on the prices of gold. But add China retail jewelry demand, and you could have a demand for gold unique in history, as far as the amount of that demand is.

Right around 80 percent of China's demand for gold is from the jewelry industry.

As they get used to investing in gold - which they will because the government is encouraging them in that direction - that will create even great demand with a diminishing supply.

Anyway, we're in for interesting times for gold, and if China does begin to run out of gold, or at minimum assuredly slow down significantly in production, it's anyone's guess as to where the price of gold will go if investment demand continues for years and a significant jewelry demand from China creates a sigificant secondary market for the metal.

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