Saturday, April 10, 2010

China and Future of Gold

There are so many interesting things that China brings to the table reference to gold in the years ahead, it's hard to know where to start.

For example, they are unique in the world other than their neighbor India for the consumption of gold as jewelry, which will probably actually bring demand for use of the metal beyond investment, and to a lesser degree, industrial uses.

Although India has always had the demand for gold, it wasn't near enough to make a difference in normal economic times, so that was never really a factor. But add millions of Chinese to the retail gold market, and it has a lot of potential to move gold for years to come, although that has yet to play out to see what type of level that will be.

One thing for sure, the Chinese like gold jewelry, and with the growing middle class with money to spend, there will definitely be a huge increase in demand, but again, we have to wait until that plays out going forward.

Estimates from the World Gold Council have Chinese gold consumption doubling over the next decade, so that's not an insignificant amount.

The same thing with investment demand from China. The Chinese have been encouraged to acquire physical gold, and gold investments in other areas as well, increasing the support and foundation under gold in a way we may have never had before. That means we're entering into uncharted territory for demand, and even in healthy economic times that could be a factor in shoring up gold at a much higher price level.

Industrial demand isn't that much of an element in the price of gold at this time, and even with the huge Chinese market it's hard to see that being a big part of the gold demand picture.

All taken together, this is a major shift in gold, and as India continues to create a larger middle class with more spending power, we'll see gold jewelry demand grow there too, probably along with investing in gold. It will demand on how high the price of gold will go and how much the people in the middle class have to spend.

Either way, China is leading the way in gold, and there can be no doubt the way we viewed gold in the past several decades has changed forever, and it's anyone's guess how far it'll go, especially as people increasingly consider it a currency; something that hasn't happened in a long time.

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