China’s Move into Gold

Emerson’s Douglas Morris looks at China’s growing interest in the acquisition of gold producing mines throughout the world.

Emerson's Douglas MorrisChina’s interest in acquiring gold assets seems to be continuing as China National Gold recently looked at purchasing 74 percent of Barrick Gold’s African Barrick mine located in Tanzania. This deal did not go through, but the commitment of Chinese entities to increase positions in this rare metal will remain.

Source: Financial Times-Chinese Miners flock to Ghana gold boom

The country already has a couple of sizable operating gold mines in Australia: Zijin Mining, the country’s largest gold producer purchased a majority share of Norton Gold Fields last August and Shandong Gold recently bought 51 percent of Focus Minerals. I expect Australian mineral acquisitions by China to continue as the country already has a solid history of owning coal mining assets in Australia.

Another continent of interest is Africa. A recent Financial Times article discusses the influx of Chinese workers and mining equipment into Ghana. This is a symbiotic relationship as native Ghanaians can get permits for small gold mines, but seek Chinese capital and equipment to run the mines. Ghana’s gold output has dramatically increased as a result.

So why all the interest in gold? The first is the obvious safe haven gold offers as a hedge against uncertainty, particularly against the US Dollar and Euro. The other reason could be that China is modeling its reserve asset allocation against other large economies. It’s investment in gold is in the low single digits while the US is at about 75 percent and several Western European countries are at 70 percent or more. According to the chairman of the London Bullion Market Association, China’s gold asset allocation can is going to continue to increase.

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