Reasons to buy gold and precious metals
...Population growth, political upheaval and economic development are changing the world and setting the scene for a significant increase in demand for precious metals...
Mark O'Byrne - Other articles
Thu 09 Nov, 2006
Population growth, political upheaval and economic development are changing the world and setting the scene for a significant increase in demand for precious metals.
Demographers predict that by mid-century, the number of people age 65 and over will increase from 7% to more than 15% of the world’s population. This will be much higher in OECD countries. It is possible this demographic, more wealthy than previous generations, could generate an increased demand for real assets, in particular, for the traditional safe havens of gold and silver.
Meanwhile, the emergence of newly industrialised economies led by the BRIC nations (Brazil, Russia, India and China) is generating new wealth and may see some two billion people move from peasant to middle class.
From a current global population of 6.5 billion, United Nations demographers forecast it will reach seven billion by 2013, eight billion by 2028, nine billion by 2054, and 10 billion by 2200. The bulk of this growth will come from Asia led by China, India and the Middle East and is likely to have an immense impact on global precious metals demand.
Reasons to buy gold and precious metals: Why Chinese demand should rocket
Gold is deeply rooted in the psyche of the Chinese people. Stemming from a powerful mix of cultural, social and economic associations is relevance has been augmented by the country’s experience of totalitarian government. Gold is considered a symbol of prosperity and good fortune in China and a means to increase and preserve one’s family’s wealth through the generations.
According to the World Gold Council China’s per capita consumption of gold is the lowest amongst the emerging Asian economies. For China to consume as much gold as say India, which many observers believe likely over the long term, consumption would need to rise threefold.
Another point of interest in China is that the gold market was recently liberalised. Chinese investors can now invest in gold for the first time since 1949.
Shanghai has established the first of a number of gold exchanges planned for China’s major cities. The Shanghai Gold Exchange has authorized the China Bank, China Industrial & Commercial Bank, China Constructional Bank and China Agricultural Bank as the banks for settling gold accounts.
In addition, it is possible Central Bank demand may well rise as senior officials call for an increase in gold reserves to hedge against concerns of a potential decline in the US dollar.
Thirty years ago China held 95% of its foreign reserves in gold. Today, China’s gold reserve only accounts for 1.3% of total reserves. A figure well below the average minimum 3%-5% adopted in many other countries. China with an estimated gold reserve of 600 tonnes has a fraction of that believed held in the US with some 8,500 tonnes.
Reasons to buy gold and precious metals: China’s international reserves to June 2006 reached US$ 941bn
According to veteran commentator Richard Russell, Editor of Dow Theory Letters, "he who has the gold, makes the law". A truism that applies in equal measure to nations as to individuals.
Russell believes that "China has given up on war as the way to win the battle for world power. The path that China has chosen is economic supremacy, and certainly economic supremacy in Asia. Gold moves and accumulates in the direction of economic power. And gold is now flowing into Asia as it leaves the US and Europe."
Reasons to buy gold and precious metals: What Indian weddings mean for gold
India has a well-known and powerful cultural love affair with gold. It is the world’s largest consumer of it and with 1.1 billion people increasingly starting to feel the benefits of rapid economic growth, the case is bullish for future demand growth.
Presently, India consumes nearly 30% of the world’s annual gold production with demand running at 720 tonnes. This is anticipated to increase by 36% to 980 tonnes by 2010 and 60% to 1,152 tonnes by 2015 according to the Indian Chamber of Commerce.
dailyreckoning.co.uk |
