China Could Be a New Leader

Today’s gold fans are quite clever. They observe gold market and they hold back purchases because they still expect the price decline. This is the situation in the UAE where gold’s golden run seems to be over; at least for the moment. It is especially very apparent in the jewelry sales spectrum as buyers hold back purchases on sentiments that prices would start treading even lower levels.

zlato_arabske_emiratyThere are many reasons why the price of silver could go much lower and one of them is fundamental one; due to the fact of possible decrease in the industrial activity. On the other hand silver usage is still widening. Recent advances in biotechnology points out on silver’s importance within the medical industry. The Silver Institute observed that the medical use of silver has helped reduce the growing threat of antibiotic-resistant germs spreading through a hospital. Why? Because one of silver features is that it breaks down cell walls and interferes with respiration and reproduction and bacteria have a great difficulty in developing immunity to the metal. Silver´s features make from silver the second most important commodity after oil today.

What is the biggest threat of owning gold? Political risk. Meaning – confiscation. Unfortunately gold has been politically sensitive metal through history. I think that it is the same story today. Last week we celebrated 80th anniversary of confiscation of gold by the U.S. government. Roosevelt had only been in office for 101 days to issue the executive order no.6102 to confiscate private holdings of gold coins, bullion, and certificates. Roosevelt called the measure a temporary one but it was not. This is the reason why internationalization of your holdings is a good hedge against these threats.

China could be a new leader of global gold consumption and surprised India this year. As we informed you for last three weeks Indian government raised import taxes. Contrary Beijing made investing easier. China approved its first two domestic exchange-traded products backed by the metal and the country has still huge potential if we compare per capita gold holdings in China to developed countries. There are only 5 grams per inhabitant in average compared with 20 grams in developed countries.  The total demand of gold is likely to be in the range of 900 to 1,000 tons this year.

After the last price drop we witnessed a huge demand across the globe for gold and silver. We witnessed delays of delivery and rising premiums for immediate delivery. After month and half everything was in normal peace. Demand was still strong but you could purchase almost any of the popular bullion-priced gold coins and bars. At premiums of about $40-$85 per ounce above spot price, you were able to have your choice of a wide selection of the large popular gold coins. We will see what happens in the short term after this week significant drop in prices.

Australia’s gold output fell 5 percent in the first quarter. Australia is the second world´s producer of yellow metal after China. Its production fell to 63.5 tons in the first quarter from 67 tons in the fourth quarter of last year. The main reason behind is wet weather in western part of Australia where 80 % of all production is mined.

Matúš Pošvanc

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