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China's Gold Imports Surge Fivefold

Gold imports into China have soared this year, turning the country, already the largest bullion miner, into a major overseas buyer for the first time in recent memory.

The surge, which comes as Chinese investors look for insurance against rising inflationand currency appreciation, puts Beijing on track to overtake India as the world’s largest consumer of gold and a significant force in global gold prices.

Gold bars
Tom Grill | Iconica | Getty Images
Gold bars

The size of the imports — more than 209 tons of gold during the first 10 months of the year, a fivefold increase from an estimate of 45 tons last year — was revealed on Thursday. In the past, China has kept the volume secret.

“Investment is really driving demand for gold,” said Cai Minggang, at the Beijing Precious Metals Exchange. “People don’t have any better investment options. Look at the stock market, or the property market — you could make huge losses there.”

Beijing has encouraged retail consumption, with an announcement in August of measures to promote and regulate the local gold market, including expanding the number of banks allowed to import bullion.

Shen Xiangrong, chairman of the Shanghai Gold Exchange, who disclosed the import numbers, said uncertainties about the Chinese and global economies, and inflationary expectations, had “made gold, as a hedging tool, very popular”.

The rise in Chinese demand could further inflate gold prices . Bullion hit a nominal all-time high of $1,424.10 a troy ounce last month. But adjusted for inflation, prices are far from the 1980 peak of $2,300.

“The trend is undeniable — gold demand in China is rising rapidly,” said Walter de Wet, of Standard Bank in London. China surpassed South Africa three years ago as the world’s largest producer.

The surge in gold imports to China bodes well for some of the world’s biggest hedge fund managers, including David Einhorn of Greenlight Capital and John Paulson of Paulson & Co, who have invested heavily in bullion, and top miners Barrick Gold of Canada, U.S.-based Newmont Mining and AngloGold Ashanti of South Africa.

The market upswing has prompted an increase in gold scams in Hong Kong, according to industry executives. The counterfeits have shocked the Chinese’ territory’s gold community not because of the amounts involved — between 200 and 2,000 ounces — but because of their sophistication.

In one case, executives discovered a coating advertised as pure gold that masked a complex alloy which included rare metals such as osmium, iridium, ruthenium and rhodium.

Chinese total gold demand rose last year to nearly 450 tons, up from about 200 tonnes a decade ago, according to the World Gold Council, the lobby group of the mining industry. Analysts anticipate a further leap this year, putting the country within striking distance of India’s total gold demand of 612 tons in 2009.

Additional reporting by Javier Blas and Jack Farchy in London