Posted on 23 June 2015 with no comments from readers
The first signs of a rush to convert financial assets into physical gold in China have emerged with a spike in physical gold payouts at the Shanghai gold exchanges.
Withdrawals of physical gold from the Shanghai Gold Exchange and Shanghai International Gold Exchange jumped 41 per cent in the trading week 8-12th June from the previous week, while year-to-date withdrawals are up 20 per cent to an incredible 1,061 tones.
To put that figure into perspective, that is higher than China’s entire last officially declared gold reserve. It represents a massive conversion of paper assets into bars of the precious metal.
The 8-12th June gold rush came before the Shanghai Composite began to sell-off late last week, quickly entering a bear market with stocks down more than 20 per cent. How much paper gold trading has been converted into the physical stuff in this market collapse?
The shift into physical gold earlier this month looks like the smart money getting out ahead of the herd. But where else can Chinese investors park their cash in an emergency?
Their fear must surely be that another deluge of money printing will be the response of the authorities. Chinese inflation has already been epic since the global financial crisis and the money printing that followed, just go there and buy things to find out.
Indeed the stock market bubble itself is a product of money printing. Investors wishing to protect themselves from the next blast of inflation, or actually to profit from it are buying gold.
How long before this begins to affect headline gold prices? Surely as the stock market tanks we will not have to wait until the next batch of figures confirm what was happening in early June.
Gold will be the next asset class to go into a bubble now that the Chinese equity bubble is bursting.