Bullion analysts across the world have only one advice for the investors now, watch out for China and cash in on the latest move by the dragon land to liberalize the gold market.
From London to new York, from Mumbai to Dubai, all analysts are now banking on the China market to lift gold as in a recent decision Beijing has shown its intention to promote consumer investment in gold. As part of this, China will let many more banks to import and export gold for consumption and also open gold trading to foreign companies.
These moves will certainly help gold demand as the Chinese market is huge in size and is yet to be tapped properly. China is also shopping for large scale new gold sources across the globe. Beijing is also creating new consumer products to boost demand and stockpiling more gold in its reserves.
The important fact is that China will push up global demand. Even though China is the world's largest gold producer it cannot mine enough of its own ore. China had to import 100 tonnes of bullion a year even before Beijing's latest gold drive. The new demand from China will drive gold prices higher worldwide.
China's share of worldwide gold demand jumped to eleven per cent last year, up from a mere five per cent in 2002. Chinese gold consumption is likely to double in the next decade. The market now consumes 420 tonnes. Chinese demand may rise to 840 tonnes as consumer incomes rise.
For Chinese consumers, gold has always been a highly important, traditional status symbol. But now Beijing wants to drive even more money into gold to prevent investors from pumping their funds into the overheated property sector.
The gold market usually undergoes an annual average growth rate of just 13 percent in China. But that 13 percent rate of increase is already skyrocketing. There has been a big jump in interest in gold over the past year. The total volume of gold traded on the Shanghai Gold Exchange jumped 59 per cent from a year earlier in the first half of the year.
This new gold-rush volume is equivalent to 3,174 tonnes traded annually. But China's gold output will rise by only five percent this year to about 330 tonnes. Global gold prices are certain to feel the pressure from new demand.
Investors who want to put their money into physical bullion to take part in the China gold rush have several well-known options through ETFs including GLD, IAU and SGOL. These give the investor a stake in an actual stockpile of bullion gathered by the ETF issuer.
China's large market has been given marching orders by Beijing to go forth and buy gold. Gold rushes are a tradition in China. Investors always pile in to buy the thing that is growing the fastest.
(Source: Seeking Alpha)