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While
there are many reasons that gold and silver are going to keep moving higher
as the fiat currencies trend lower, at our recent Casey Research Summit in
Boca Raton, faculty member Mike Maloney pointed out a fact that, while
obvious in hindsight, I had never heard mentioned previously.
Namely
that during the last major precious metals bull market in the 1970s, only
about 10% of the world could own gold – either due to legal
restrictions or a lack of liquid capital.
Today,
few countries prohibit gold ownership, and a far higher percentage of the
world’s population has transitioned out of poverty.
China
provides the most germane example, having legalized gold and silver ownership
for private citizens in 2004, and through the explosive growth in national
GDP that has caused Chinese gold purchases to skyrocket.
Confirming
the point, the following is an excerpt from a recent Wall Street Journal
article:
Chinese
investors are snapping up gold bars and coins, buying more than ever before
in the first quarter of 2011 and overtaking Indian buyers as the world's
biggest purchasers of the metal.
A
growing middle-class in China is raising the appetite for gold there.
China's
investment demand for gold more than doubled to 90.9 metric tons in the first
three months of the year, outpacing India's modest rise to 85.6 tons, the
World Gold Council said in its quarterly report on Thursday. China now
accounts for 25% of gold investment demand, compared with India's 23%.
The
report underscores the rising appetite for gold among the growing
middle-class in China. Fears of the country's soaring inflation, as well as a
search for new investments, is luring investors to gold, and marketing of the
precious metal has also increased in recent months.
"I
think people will be surprised by the strength in the Chinese demand, but we
think this is a trend that is set to continue," said Eily
Ong, an investment research manager at the gold
council.
Notoriously
active savers, stashing away on the order of 50% of their income, the Chinese
are increasingly opting for gold over the renminbi
to stash their wealth.
For
those wondering just how big a development this is, consider that in 2007,
just before investing in gold became “the thing to do,” gold
demand in India was 61% of the world’s total while China’s gold
demand was only 9%.
In
other words, India is no longer the only elephant in the gold vault. And they
are not alone – investors around the world are now able, and willing,
to buy gold as a way of protecting their wealth from the inevitable decline
of the fading fiat currencies.
I
still don’t think we are out of the woods on a commodities correction,
but there are so many black swans floating overhead that literally anything
can happen, at any time. Thus buying in tranches on pullbacks over the next
four to six months still makes a lot of sense.
But
in the longer term, gold has almost nowhere to go but up.
[The
current edition of BIG GOLD tells you how to take full advantage
of corrections in gold and silver – and how to get the most bang for
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David Galland
Managing
Editor, Casey Research
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