Metal "will remain a favored choice," one expert predicts
"When people finally realize that there's a shortage of gold, the price starts to go up. The most incredible thing to me is that because of all the misinformation out there, China can buy an extra 25% of the gold market over the last two years, and the price goes down. ... It should be substantially higher."-- Eric Sprott of Sprott Asset Management in a Novemberinterview with The Gold Report.Another day, another upward revision to the estimates of China's gold consumption. Eric Sprott in recent months has been openly questioning the statistics compiled by industry firms such as the World Gold Council and Thomson Reuters GFMS, alleging that they underestimate true demand there.
Now Mineweb's Lawrence Williams has spotlighted the work of Koos Jansen, who "suggests that Chinese gold consumption in the current year will more likely exceed 2,000 tonnes, perhaps as high as 2,200 tonnes which implies a much higher level of imports than the World Gold Council's assumed 1,000-tonne estimate issued far earlier in the year before the continuing high monthly figures for imports through Hong Kong had become fully apparent. ...
"So, how does Jansen arrive at a much higher total estimate? He draws on published figures from the (People's Bank of China), the Shanghai Gold Exchange (SGE), and Swiss gold import and export data to reach his conclusions."
Who's buying all this gold? The Chinese "aunties" are at it again, according to Bloomberg in its Nov. 19 article "Gold No Slam-Dunk Sell in China as Aunties Buy Bullion."
The article profiles Yang Cuiyan, a 41-year-old housekeeper from Anhui province, who traveled 650 miles to Beijing to buy gold. Yang "is one of the legions of middle-aged Chinese women, respectfully referred to as aunties, who bought coins and jewelry this year, bringing support to a market shunned by many professional investors who began doubting the metal as a store of value."
"I don't know anything about the stock market and I don't have enough money to buy property, so I figured gold is the safest choice," she said. "I can put it on when I go back home to show everyone that I'm doing well. ... I don't want to put my money in a bank. I want to keep up with my relatives and friends back home. We all like to compete to see whose necklace is thicker."
China's demand for jewelry, bars, and coins rose 30% to 996.3 tonnes in the 12 months to September, while usage in India gained 24% to 977.6 tonnes, according to the WGC. India was No. 1 in 2012.
"Images in Chinese media of aunties clearing shelves in gold shops after a 14% plunge in prices in two days in April illustrate an appetite for bullion that defies the views of the biggest banks in the West and points to limited investment choices in China," Bloomberg noted.
"In China, you look around and see very few places to put your money," said Duan Shihua, a partner at Shanghai Leading Investment Management Co. "With the share market down and the government nudging people away from real estate, gold will remain a favored choice."
Chinese demand will be a key support for gold going forward. Once the allure of the stock market loses luster in the West and/or monetary velocity from unprecedented central-bank liquidity lights the fuse of inflation, expect a pickup in demand from investors in the U.S., and thus a resumption in the rise of dollar-denominated gold prices.
Furthermore, as China and Singapore grow in stature as gold-trading hubs, the price-setting mechanisms that are currently based in London and New York should give way to increasingly dominant Asian counterparts in cities like Shanghai, and prices will more truly reflect voracious Eastern physical demand and not waning Western gold ETF and futures investment.
More information can be found online at http://www.goldbullionadvisors.com
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