Gold and silver are higher again today with the debt laden dollar, euro and yen all being sold. News that China has become the world’s largest buyer of gold bullion and has seen investment demand double continues to reverberate in the markets and may have contributed to this morning’s strength.
Both gold and silver are marginally higher for the week and after last week’s gain appear to have regained their poise and are consolidating after the recent sell off.
Gold Investment Demand in China - Courtesy of the Wall Street Journal
China becoming the world’s largest gold buying nation is very important. While informed analysts have been saying that this would inevitably happen much of the commentary and most of the public remain completely unaware of the huge implications that Chinese gold demand has for the gold market.
Indeed, there continues to be a huge level of ignorance regarding the scale and sustainability of China’s, but also India’s and other large and increasingly wealthy Asian countries, demand for gold and silver bullion.
Chinese investors bought 93.5 tonnes of gold coins and bars in the first quarter. China produced 340 metric tons of gold last year and consumption was about 700 tonnes, leaving a gap of nearly 360 tonnes.
Demand is forecast to increase due to the growing wealth of the Chinese middle class and deepening inflation in China.
What is most important and rarely covered is the fact that gold ownership by the Chinese public remains minuscule. Especially when compared to other Asian countries such as Vietnam and India.
Gold ownership is rising from a very, very low base which means that the investment demand and demand for an inflation hedge from 1.3 billion increasingly wealthy Chinese people is more than sustainable.
The not realized important fact that the people of China were banned from owning gold bullion from 1950 to 2003, means that the per capita consumption of over 1.3 billion people is rising from a tiny base.
Cross Currency Rates (Including Gold and Silver)
While the recent increase in Chinese demand has been very significant, it is likely to continue and the demand is sustainable due to Chairman’s Mao’s half-century gold ownership ban.
Should the Chinese economy crash as some predict, demand could fall. However, sharp declines in Chinese equity and property markets and a depreciation of the yuan would likely lead to significant safe haven demand for gold.
Indeed, should high inflation continue in the Chinese economy or should higher inflation or even stagflation occur than Chinese demand could even increase.
Chinese demand alone likely puts a floor under the gold market at $1,450/oz.
The inflation adjusted high of $2,400/oz remains very likely given Chinese and Asian demand alone for gold bullion.
Many market participants and non gold and silver experts tend to focus on the daily fluctuations and “noise” of the market and not see the “big picture” major change in the fundamental supply and demand situation in the gold and silver bullion markets – particularly due to investment and central bank demand from China and the rest of an increasingly powerful and wealthy Asia.
It is worth noting that the People’s Bank of China’s gold reserves are very small when compared to those of the U.S. and indebted European nations. China appears to be quietly accumulating gold bullion reserves. As was the case previously, they will not announce their gold purchases in order to ensure they accumulate sizeable reserves at more competitive prices.
SILVER
The recent bear raid on silver is being challenged by silver’s very favourable supply and demand fundamentals.
The Comex Registered Silver Bullion Inventory Data shows that silver bullion inventories are now at record lows (see chart).
Speculative paper players on the COMEX may have been successful in again manipulating prices lower but as ever the physical reality of supply and demand for the underlying commodity, asset and currency will dictate prices in the medium and long term.
Comex Silver Bullion Inventory Data/Registered
Gold
Gold is trading at $1,500.90/oz, €1,049.95/oz and £922.95oz.
Silver
Silver is trading at $35.10/oz, €24.55/oz and £21.58/oz.
Platinum Group Metals
Platinum is trading at $1,763.50oz, palladium at $728/oz and rhodium at $1875/oz.
News
(Financial Times) --Chinese set new standard in buying gold
http://www.ft.com/intl/cms/s/0/8843dbb8-824a-11e0-961e-00144feabdc0.html
(Wall Street Journal) -- China Is Now Top Gold Bug
http://online.wsj.com/article/SB10001424052748704816604576333080229436072.html
(Bloomberg) -- Gold May Gain on Europe Debt Concern, Inflation, Survey Shows
http://www.bloomberg.com/news/2011-05-19/gold-may-gain-on-europe-debt-concern-inflation-survey-shows.html
(Reuters) -- PRECIOUS-Gold regains strength on bargain hunting,silver steadies
http://www.reuters.com/article/2011/05/20/markets-precious-idUSL4E7GK0OB20110520
(Bloomberg) -- Gold Advances as Europe Financial Turmoil, Dollar Weakness Spur Purchases
http://www.bloomberg.com/news/2011-05-20/gold-advances-as-europe-financial-turmoil-dollar-weakness-spur-purchases.html
(Bloomberg) -- Gold Imports by China May Rise After Demand Gains to Record, Council Says
http://www.bloomberg.com/news/2011-05-20/gold-imports-by-china-may-rise-after-demand-gains-to-record-council-says.html
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