Tags: China | gold | property | India

China's Economic Reforms May Boost Gold Prices

By    |   Friday, 08 November 2013 10:38 AM EST

Extensive economic reforms in the works in China could boost demand for gold, setting a floor under the metal's price.

The Communist party leaders meeting this weekend may adopt a property tax in an effort to rein in skyrocketing real estate prices that many observers believe have formed a bubble waiting to pop. The tax could encourage investors to turn to gold instead of homes.

"Meaningful reform will be painful and disruptive, and I suspect a lot of Chinese will seek the perceived safety and portability of gold," Patrick Chovanec, managing director and chief strategist at Silvercrest Asset Management, told CNBC.

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"That will be particularly true if the bubble in China's property market pops. For the Chinese, buying and stockpiling empty properties serves much the same function as investing in gold, since they are both unproductive stores of value, so if real estate sees a major correction, many Chinese will turn to gold."

Gold is down 21 percent this year, and is 31 percent off its peak reached in September 2011. Still, some analysts believe Asian buyers, especially in China and India, will support gold prices.

Government controls limit investor options, leaving gold and real estate one of their few choices, experts told CNBC. Reforms are not expected to change that situation any time soon.

"We expect the physical demand to remain robust as any uncertainty over the reform process from Chinese citizens (and a limited investment choice) is likely to be channeled back into gold, which is a traditional store of wealth in Asian countries," Martin Arnold, a senior analyst at ETF Securities, told CNBC.

China has supported gold prices this year when prices would have otherwise fallen even further than they have due import limits in India and fears of the Federal Reserve tapering its economic stimulus, according to HSBC Holdings analysts.

"China's brisk appetite for gold is the single most bullish factor in the gold market, in our view," HSBC analysts James Steel and Howard Wen stated in a research note, according to the International Business Times.

A growing middle class and a Chinese preference for gold gifts and jewelry points to a healthy long-term demand for the metal. China imported 826 tons of gold from Hong Kong in the first nine months of the year, twice as much as the same period last year, the Times reported, citing customs data.

But it's not clear if that kind of demand is sustainable or how gold will fare next year.

"This level of appetite for gold is not sustainable longer term and could drop below this level [of 1,000 tons] for 2014," the HSBC analysts stated.

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Markets
Extensive economic reforms in the works in China could boost demand for gold, setting a floor under the metal's price.
China,gold,property,India
483
2013-38-08
Friday, 08 November 2013 10:38 AM
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