Gold Gaining Support in China and the U.S.

Gold may have been in a small lull mid-week, however that lull is not slowing down the yellow metal’s overall strength. Big things have been happening in China for gold. There’s also an increased confidence building behind gold’s safe haven status in the US. Here’s a brief overview of the factors affecting gold in these two countries.

China Importing More Gold

Licenses were granted for the first time to two foreign banks to allow more gold imports to China. Late last year Australia and New Zealand Banking where awarded licenses, and now it seems that China Everbright Bank has been granted approval to join the nine other banks already allowed to ship gold to China. This may or may not cause a huge surge of gold into the country as demand will be the largest driver. With China surpassing India as the world’s largest consumer of gold last year, the more open channels the better.

China May be Stockpiling Gold

China’s central bank may be stockpiling gold and now could possess over 2,700 tonnes. Jeff Nichols is a managing director of the American Precious Metals Advisors. His sources state that the People’s Bank of China bought over 650 tonnes of gold between 2009 and 2011. Recent numbers have not been released, but if the past 3 years have continued at this pace then the central bank of China may be sitting on a massive amount of gold. Furthermore, recent gold prices have increased this countries appetite even more. “The important thing isn’t the specific numbers themselves,” Nichols told IBTimes. “There’s growing appreciation of indications that the [Chinese] central bank has been accumulating gold in recent years, probably in significant quantities.”

China has large amounts invested in the US dollar and this could be a gradual move away from the $1.3 trillion in US treasury bonds. It seems China wanted this diversification and was looking toward the euro, but as the euro zone crisis broke out – the desire to buy gold seems to be the replacement.

China and Credit Issues

It seems the measure of new credit fell in December for China. This is a red flag for further economic expansion for China. New loans are now even harder to come by for businesses and consumers. The Chinese economy is doing well, but this may cause some serious issues. “With the world economies and financial systems now being so closely inter-connected, any serious credit problems in China could quickly become a worldwide contagion.”

The US and Inflation

A recent government report showed the cost of living in the US has increased in December – much more than in the past six months. Reports like these remind investors that inflation is a serious factor to consider. Recently the Federal Reserve has been doing a good job keeping inflation under control. Although this recent report is no monumental shift, it is a subtle reminder that inflation is inevitable, and it’s only a matter of time before the Fed’s magic wears off.

Gold as a Safe Haven

It’s impressive to see the case being made for gold as a safe haven. When the central bank of China looks to diversify its holdings away from US treasury bonds to gold, investors should take heed that the yellow metal is still a solid safe haven for wealth protection. Furthermore, with China’s issues with credit and loans, it’s no wonder why this world leader is actively stockpiling gold. The US has its own issues to face with the risks of inflation on the rise once again. Precious metals have traditionally been touted as a safe haven investment against inflation, and now with the cost of living on the rise again, investors may be anxious to protect their wealth.

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Resources: Reuters, Forbes, Bloomberg