While the US dollar gold price may suggest otherwise, it looks as though physical gold demand may be running at record, or near record levels; yet the gold price drifts, although it is currently back off its bottom – but for how long? Click here to read my latest article on Sharps Pixley which discusses this apparent anomaly, but one that has been prevalent pretty much since April 2013.
The World Gold Council has, for example, just reported the second highest ever quarterly central bank purchases (although to be honest this conclusion could be described as a little misleading as pointed out in the Sharps Pixley article linked above) and strong retail demand elsewhere.
Meanwhile the Shanghai Gold Exchange has been reporting huge new record physical gold deliveriess (this year’s to date figure has already exceeded the full year SGE deliveries record of 2013 and already is some 366 tonnes higher than at exactly the same time in 2013.
As we note in the article there are differences of opinion on the exact correlation between SGE deliveries and what is classified as Chinese gold demand – largley due to the classification of what actually comprises ‘demand’ or ‘consumption’ but as a like-for-like indicator of what is happening in China in comparison with prior years one cannot ignore the SGE statistics – and the mainstream analysts do not dispute that 2013 was the record year for Chinese gold consumption.
And in terms of global gold consumption it is still China and India which between them hold the key. China is rebooting its economy but as was seen in the absolutely enormous recent ‘Singles Day’ (dwarfing those of the U.S.’s Black Friday and Cyber Monday put together – see Chinese Singles Day Sales Eclipse Black Friday And Cyber Monday Combined) the purchasing power in the hands of China’s ever growing consuming classes is already absolutely huge and growing at perhaps 5-6% a year. There is also a propensity for buying gold so we are entering an era where Chinese gold purchasing alone will probably start to exceed total new supply. And Indian demand remains huge too – and again with a potential economic growth potential which greatly exceeds anything in the West. If the Modi Government can deliver on its promises, then demand growth here could start matching that of China – although the Indian intelligentsia have their doubts as to whether Modi is anything more than a consummate politician and thus a master of spin to match many of his Western counterparts! (This is being written from India and the comment comes from conversations with Indians from Modi’s own state of Rajasthan).
However, how long gold prices can continue to move downwards under a massive, and ever-continuing, Sino-Indian growth scenario, remains the $64,000 question!