Chinese citizens turn to gold in one of greatest booms in metal's history
Comment of the Day

May 23 2011

Commentary by Eoin Treacy

Chinese citizens turn to gold in one of greatest booms in metal's history

This article by Frank Holmes appeared in today's Mineweb newsletter and may be of interest to subscribers. Here is a section:
The World Gold Council (WGC) released its quarterly "Gold Demand Trends" report last week and, as always, it was filled with fascinating data on the strength of the global gold market. Gold demand grew 11 percent to 981.3 tons during the first quarter of 2011, worth $43.7 billion at quarter-end's price levels.

The increase was driven by a significant rise in demand for gold as an investment, up 26 percent from a year ago, as emerging markets look to protect their assets from rising inflation. Demand for gold bars and coins was up 62 percent and 42 percent, respectively.

A slight pullback in prices during the middle of the quarter and "persistent high inflation levels" pushed China into the position as the world's largest market for gold investment. Chinese citizens devoured nearly 91 tons of gold bars and coins, more than double the amount of a year ago.

This isn't exactly a new phenomenon in China. From 2007 to 2010, investment demand grew at a compounded annual growth rate of 68 percent, according to the CPM Group. The firm forecast Chinese investment demand to increase 34.7 percent during 2011 but based on this new data, it may need to adjust its forecast.

Eoin Treacy's view Gold often evinces a tactile response in those who own it. At least part of the allure is that gold is a physical asset and therefore has a sense of permanence one does not get with fiat currencies, shares or bonds. In Shanghai last year, I met a subscriber who attested to loving the feel of gold. He told us how the first time he held a gold bar, its cool solidity was enough to make him want more. He is obviously not alone with Chinese demand for gold rising at an impressive rate. China is now also the largest producer of gold.

Gold has been remonetised in the eyes of many European and North American investors. Gold is also assigned a quasi monetary value in China but is also one of the trappings of wealth and considered to be worth having for its own sake. Gold offers the same sense of attraction as other luxury goods and therefore also offers leverage to the growth of the global consumer. It's commonality with the consumer related shares mentioned in the above piece helps to illustrate this point. (Also see David's piece on gold above).

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