Gold will keep its shine this year
By Jack Farchy
Unbelievable. Explosive. Insatiable.
These are some of the words bankers are using to describe the gold market. That may come as a surprise, as the gold price has had an uncharacteristically quiet start to the year, for the most part trading either side of $1,350 an ounce.
The dramatic language is being applied to the strength of Chinese demand. Many have been truly shocked by the level of Chinese buying in the first few weeks of the year. As one senior banker (who is not prone to hyperbole) put it: “The demand in China is vast. It’s unbelievable. Whatever you think the demand is it’s much bigger… I’m really staggered.”
With the consensus among analysts growing ever more cautious on the outlook for the gold price this year, gold bears (and bugs) need to pay attention to developments in China. Some of the biggest physical bullion traders, who see the strength of demand from China --and much of the rest of Asia-- are finding the bearish views hard to maintain.
The most recent data from the World Gold Council, the miner-backed lobby group, show the extent to which the focus of the market is shifting to the east. Last year, China overtook the US and Germany to become the second largest gold investment market after India, the WGC said. Between them, China and India – which also witnessed a fairly stunning rebound – accounted for 51 per cent of global gold demand (excluding industrial consumption). That’s up from 42 per cent in 2009 and 31 per cent five years ago.
This year looks likely to extend that trend, if January is anything to go by. But the key question for gold investors is: Can the growth in Asian consumption outweigh any weakness in western investment demand?
It is a well-worn dictum that investor appetite for gold moves in an inverse relationship with real interest rates. When real rates are low or negative (ie when inflation is near or higher than interest rates) gold benefits as the opportunity cost of holding it is relatively low, and its properties as a wealth-preserver come to the fore. With investors bringing forward their expectations for when central banks in the US, eurozone and the UK will raise rates, gold demand in those countries could suffer.
But the link applies just as well in China, India and other parts of Asia, where rising food inflation is eroding the value of local currencies. For that reason, traders say, it would be wrong to write off the spike in Chinese demand as a seasonal blip related to the lunar new year holiday.
As any iron ore, copper or oil seed trader can attest: underestimating China’s potential to revolutionise a market is a dangerous bet.
0 comments:
Publicar un comentario