China wields greater and greater influence in global financial markets with every passing day, as the world's largest nation transitions from its old role as a low-wage manufacturing center to a mature economy with higher consumption. For decades, it was America's consumers and investors who set the marching orders for economies around the globe, but when over 1.5 billion Chinese people began earning and consuming more, a shift was inevitable.
It stands to reason, therefore, that China will have an impact on the market for physical gold bullion, as well as the various gold investment vehicles. At present, only five banks in China are allowed to import and export gold. The People's Bank of China, though, issued a statement this week saying that it would open up the markets, giving more financial institutions permission to get involved in the bullion business.
Even more important than the financial dealers, though, may be the behavior of individual Chinese investors. The stunning rise in the price of gold over the past decade has been driven, as much as anything, by the realisation of more and more average Americans - and Europeans - that paper currency may not be the safe haven that many believed.
Fearing inflation, American investors have poured record-breaking amounts of money into physical gold, turning to one of the world's oldest stores of value.
In Asia, the important role gold bullion, jewelry and coins play in preserving wealth has been remembered better than it was here, across the Pacific. Asian investors have seen the devastating effects of inflation and currency crises first hand; the 1997 Asian Financial Crisis wiped out decades of progress in some nations
The collapse of the housing bubble was a pivotal moment for many Western gold investors. It's important, then, that China appears to be in the middle of its own real estate bubble.
Journalists in China report vast construction projects with no tenants, banks with enormous, hidden portfolios of non-performing loans and a government determined to wallpaper over the cracks in many circumstances.
As the world's largest producer of gold, China offers investors amazing access to the physical gold markets. If even a fraction of Chinese investors turn to gold in the same way that Americans have in the past few years, the global market could see an astonishing tightness in supply and further increases in the price of physical gold.
