Hey IDC Holders
Again, as economists, we need to continually evaluate the fundamentals of the global economy, shares and where the price of gold are all moving towards and working out where we can take advantage of the situation as we did in March 2009 when all the stimulus around the world lifted economies and markets 6-9 months later.
The current market is pricing in a global recession, whereas economic indicators out of the US are showing steady growth, as well as China's GDP for the June quarter coming in at a healthy 7.6%. This will accelerate as we head into 2H2012 to above 8.5% in time for a smooth transition from the current Chinese govt to the new one.
With significant stimulus measures already announced as well as more to come, IMHO, we will be looking back at this period as a good time to invest in the market.
The official Chinese Govt website China Daily is again highlighting the fact that as the Chinese Money supply continues to increase with lower RRR and interest rates, together with the govt fiscal stimulus measures that will be announced in the coming fortnight, we can expect to see demand for Gold Bullion to lift from current record highs from Chinese citizens. This is on top of Central Bank purchases which have increased significantly in recent months.
The Chinese authorities are forecasting the price of gold to hit $1800/oz by the end of the year on the back of increased demand from Chinese citizens alone, let alone from pent up demand from Indian consumers, and Central Banks around the world trying to short up their financial systems.
There are multiple factors that will continue to underpin long term demand for gold bullion from China is the fact that their old gold mines are deteriorating and their production is expected to fall by 40 tonnes this year compared to consistent increases in gold production over the last 10 years.
Their gold mines are producing less gold per tonne of dirt than any time in their history, which helps to explain their significantly higher imports of gold from Hong Kong over the last 6-12 months.
With only 1.7% of the currency reserves sitting in gold bullion, expect to see a significant investment in overseas gold projects in order to replenish their Yuan as it moves towards a leading currency used in direct trade, instead of the current exchange to $US, then to Yuan for most nations.
The other significant factor is that the Chinese public save over 55% of their income. In the past they have bought property to protect their wealth, since the last property boom caused inflation to rise, the Chinese govt has put significant controls on property purchases to ensure this doesn’t happen with the imminent govt stimulus.
Since they can’t invest in property the govt is leaving gold bullion as an option for them to invest in as a store their wealth…….
Great for Aussie Gold Stocks like IndoChine Mining!
Chinese demand brings new luster to yellow metal
Updated: 2012-07-11 09:33
By Cai Xiao (China Daily)
A shop assistant arranges a display showing gold jewelry in a store in Huaibei, Anhui province. Last year, about 496 metric tons of gold were used in the production of jewelry for the Chinese market.[Photo / China Daily]
Globally, the private sector's demand for gold is weakening.
But it remains strong in China, helping to fuel expectation that the price of the metal will be above $1,800 an ounce before the end of this year, experts said on Tuesday.
Because gold prices remain high and concerns have arisen about fluctuations in the metal's price in the short term, the global private sector has been purchasing less of it, said Philip Klapwijk, global head of metals analytics of Thomson Reuters GFMS.
"But the Chinese market remains strong, which makes it an important factor global investors have to focus on."
Last year, China's demand for bullion for investment purposes was strong enough to lead to the sale of 250 metric tons of the metal, an increase of 40 percent. In India, even more gold bars were sold, 288 tons worth.
In the same year, 496 tons of gold were sold in China for use in making jewelry. In India, though, the amount sold for that purpose decreased by 3 percent year-on-year.
"The Chinese demand for jewelry will be similar to that of India in 2012, while China will have more gold bars than India this year," Klapwijk said. "So China is expected to be the world's largest market for gold consumption by the end of the year."
Globally, the amount of gold bought for investment purposes decreased 10 percent year-on-year in 2011, falling to 1,605 tons. Even so, that went for a record high of $81 billion.
Low interest rates, the worsening debt crisis in Europe and concerns about inflation were the main reasons cited for the increase in the value of gold.
Also last year, 2,759 tons of the metal were sold globally for use in manufacturing. That was down 0.9 percent year-on-year, a result largely of a decline in the demand for jewelry.
Klapwijk speculated that central governments are also buying more gold, saying such official buying becomes more influential when the private sector is weak.
A report Klapwijk released on Tuesday said that a modest increase in mine production and a higher supply of scrap gold have led to a record supply of the metal in 2012.
Meanwhile, demand for manufacturing purposes, which mostly comes from jewelry makers, is forecast to fall by a small amount this year.
The report said external economic and financial conditions in the coming months are predicted to attract more money into the gold market. One reason investors are expected to take a greater interest in gold is the likelihood that more countries will ease their monetary policies in the near future.
Klapwijk said the gold market will continue to fluctuate in the very short term, although the price of the metal should remain around $1,500 a troy ounce.
"We would not be surprised if heightened volatility was to continue, in part as investors' interpretation of the impact of macroeconomic news on gold seems to be increasingly variable," he said. "Despite this noise, and the stagnation in the price that we have seen over much of the year-to-date, we believe the gold bull market remains intact.
"Indeed, as we move into the fourth quarter, a clearer uptrend should establish itself, with gold easily breaching the $1,800 mark before year end. A new high for the price does, however, seem to have been postponed until the first half of 2013."
At $1,586.30 a troy ounce, the price of spot gold was little changed at 2:03 pm on Tuesday in Singapore, down from a record of $1,921.15 in September. The price of the metal has increased for 11 straight years, Bloomberg reported.
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China's gold output could fall 40 tonnes this year
Frik Els | July 5, 2012
china_workers_banknote_finance_by_Georgios_Kollidas_Shutterstock
China Daily reports official ministry figures for the first five months of 2012 show China’s gold output for the period rose 6.6% year on year to 140.7 tonnes.
Gold production in the country – the world's top miner of the metal – appears to be slowing. Gold production growth reported at the end of the first quarter was put at 10% .
China's gold mining industry is highly fragmented. The nation's top 10 gold companies produced less than half of the total for the country. The larger producers also only managed to increase output by less than 1% from January to end May.
China produced 380 tonnes of gold during 2011, over a 100 tonnes more than its nearest rival, according to data from London-based mining and metals consultants CRU.
Annualized official Chinese figures suggest this year the country's gold miners would only produce some 337 tonnes which would be less than the country's annual output in 2010 of 341 tonnes.
South Africa, now behind the US and Australia, ranked number one for gold in the world for a century before losing the top spot to China in 2007. At its peak in the late 1960s the gold fields of the African nation produced more than a 1,000 tonnes of the yellow metal per year.
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