Gold bullion imports from Hong Kong into mainland China increased 600% in May 2012 when compared to May 2011! (Source: Bloomberg, July 9, 2012.)

China is set to take the lead from India as the largest purchaser of gold bullion in 2012. The World Gold Council estimates that China will buy at least 870 tons of gold bullion in 2012.

Just to give an idea of how large these purchases of gold bullion are, in the first five months of 2012, China has imported over 300 tons of gold bullion from Hong Kong. Just isolating this number alone would put China as the 17th largest holder of gold bullion in the world!

As I’ve been writing in these pages, as the price of gold has fallen, China has provided money to its gold miners, which they in turn have used to buy other gold miners around the world. These Chinese gold mining companies then bring the gold bullion back in the country, but the statistics surrounding these imports are not published.

The only reason why we know of China’s insatiable demand for gold bullion is that it is Hong Kong that publishes the statistics quoted above.

As of a few years ago, China also banned the export of its gold bullion. The country had the capacity to pull roughly 390 tons of the yellow metal out of the ground, but has kept it all for itself.

Despite the country’s concerted effort to buy as much gold bullion as possible, the price of gold remains in a trading range. One of the factors holding the price of gold down is India.

Dear reader, it is important to note that China will become the largest gold bullion buyer in 2012, not because demand in India has fallen off, but because India’s currency, the rupee, has fallen in value, hiking up the price of gold within the country. With the currency off over 10% from last year’s levels when compared to the U.S. dollar, it is now more expensive for the consumer in India to buy gold bullion.

As the price of gold remains stuck within a range of roughly $1,550 on the downside and $1,700 an ounce on the upside, the demand for gold bullion continues to be very strong.

Besides China and India, many other central banks around the world are increasing their holdings of gold bullion, making it only a matter of time before the price of gold reflects the strong demand. (See: “Who Has Money Buys Gold.”)

Where the Market Stands; Where it’s Headed:

Is the bear market rally in stocks finally over? After all, the stock market has been down six out of the last six trading sessions.

Yes, dear reader, we are almost there. The rally in stocks that started in March of 2009 will soon give way to Phase III of the secular bear market (which means the low of March 2009 on the Dow Jones Industrial Average could be tested).

But although the Federal Reserve cannot bring short-term interest rates down any lower than they are, the Fed can increase the money supply again to boost the economy, which will give a lift to stocks. The big question is: will the stock market react big-time to more quantitative easing or will it brush it off this time because QE1 and QE2 had no structural impact on the economy? We’ll soon have the answer.

What He Said:

“Investors have been put into an unfair corner. Those who invested in stocks because they got caught in the tech boom (1999) have seen their investments gone. Now, those who have leveraged heavily to play the real estate game, because it is the place to be (2005), could see the same fate as the stock market investors. Thanks again, Mr. Greenspan.” Michael Lombardi, Profit Confidential, May 27, 2005. Michael started warning about the crisis coming in the U.S. real estate market right at the peak of the boom, now widely believed to be 2005.