Chinese Gold Rush
China's Gold Demand Soars Amid Drop in Global Demand
The time to buy gold under $1,000 is rapidly expiring.
But you can still squeeze in the door.
It's already been a hell of a ride. . .
After sustained growth from $250/oz in 2001, gold prices have been stuck between the $700 - $1,000 level for almost 24 full months. But after a brief near-term pullback (and probably your last, best time to buy under $1,000), I expect gold prices to move higher. . . much higher. . .
Probably to the $1,250 level at first, then well over $2,500 an ounce.
After that, there's no telling how high gold prices will eventually climb.
No one knows for sure, but one thing is clear. . .
Patient gold investors are about to sit back and watch their portfolios safely balloon in value over the next several months. And it's not too late to join them. Here's what I mean. . .
Weakness in Jewelry and Industrial Demand Keeps Gold Prices Low
Total world gold demand fell 9% in 2Q 2009 from levels one year prior, equivalent to a 6% decline — $21.3 billion in dollar terms.
This decline was mainly attributable to weakness in jewelry and industrial demand, which dropped 22% and 21%, respectively.
These sectors are very important to gold's demand fundamentals. They accounted for an average 84% of total demand between 2004 and 2007.
As a result of the global recession, however, jewelry and industrial demand only accounted for 69% of total demand in 2008.
Continuing this trend, gold demand for jewelry and industry has accounted for only 53% of total world demand during the first half of this year.
The steep decline for gold demand from jewelry is no real surprise.
The second quarter scenario of relatively high gold prices, at a time of severe global economic difficulty, contributed widely to the decline in jewelry sales.
The reduction in demand for gold jewelry was a global story with just one exception: China.
A Far East Glimmer of Hope for Gold Demand
In stark contrast to the overall 22% decline, Chinese gold jewelry demand increased by 6% — equivalent to a 9% increase in dollar terms, to $2.15 billion.
The increase in Chinese gold jewelry demand is largely attributable to healthy rates of economic growth, stability in the local currency, and a raft of government measures aimed at mitigating the impact of the global downturn.
Last week, I mentioned that we could see China overtake India in gold demand on a sustained basis within the next 10 years. This could happen in as few as five years.
And there will be tremendous investment opportunities associated with this shift.
In fact, I'm looking at several new Chinese gold stocks for my portfolio right now.
With a unique resilience to the pressures of the global economic slowdown, China is rapidly becoming one of my favorite gold mining regions.
Demand is soaring. Meanwhile, domestic gold production will never be able to keep up. As a result, we'll likely see an explosion in local gold prices skyrocketing.
Expect to see rising gold demand in China contribute to the market size of Chinese gold producers. I'm currently scrutinizing companies that are producing gold in China with significant output and long-life mines.
Editor, Gold World
Investment Director, The Mining Speculator and The Insider Alert
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