Deregulation Set to Lift China Gold Demand

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"If Beijing were to buy 100 tons of gold, 'prices would leap.'"

Plans to free up China's gold market are likely to boost imports of the precious metal to satisfy investor demand, putting the Middle Kingdom on course to eclipse India as the top global consumer in a few years.

China, the world's largest consumer of base metals and the second biggest user of oil, is on gold bugs' radar screens, with any hint that Beijing may want to boost its gold holdings rippling through international markets, sending bullion higher.

So far China's central bank has shied away from the international market and has instead been building reserves from its domestic mining industry, the largest in the world.

But that may change after the People's Bank of China said in August it would let its banks export and import more gold in a program to drive the development of the country's market in the precious metal.

By opening up the market, the PBOC may be able to draw tons of gold into China, which it could then pick up on the domestic market, without disrupting market equilibrium too much.

"The way they will accumulate a massive amount of gold is by opening up imports and making sure there is heck a lot of gold swishing around in the domestic market," said Mark Pervan, a senior commodities analyst at ANZ.

"It's just too big a player in the market. Investors are looking for any signs of China buying gold on the world market. If Beijing said it was buying 100 tons, prices would leap, not because of this 100 tons, but because of the 300 tons the market would expect to follow."

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