Tags: Gold | Western | Eastern | physical

Real Gold Heads East ... Far East

By    |   Friday, 06 Sep 2013 07:38 AM

Lost in all the fuss about gold prices is the fact that there is strong demand for physical gold worldwide, especially in Asia.

Many investors in the Western Hemisphere, namely the United States and Europe, abandoned their positions in gold derivatives like exchange-traded funds (ETFs), short contracts and futures for potentially greater gains in the stock market. As a result, ETFs and other financial institutions have sold off a big chunk of their excess physical gold inventories.

And many investors in the Eastern Hemisphere, namely India, China, Southeast Asia and the Middle East, have snapped up all the new supply they can get their hands on. These investors have long favored physical gold — in coins, jewelry, ingots and bars — due to their history with unstable governments and weak banking systems. Gold is also a store of value that is very portable, which is an admirable attribute in times of great economic and political uncertainty.

So with gold prices relatively low and supply relatively high, it is not surprising that there is record demand among emerging middle class in India and China eager to diversify their new wealth. For example, huge gold imports to India have created a record trade deficit so large that the Reserve Bank of India took the drastic measure to effectively ban gold imports.

Expect supplies of physical gold to be tighter in the future. Eastern investors hold onto gold for the long term and pass it down to family, so few will be interested in selling it. Nor are they generally interested in loaning their gold out for derivatives because they want to own their gold free and clear. And in China, it is illegal to export gold, so what goes in never goes out.

Adding to the potential supply problem is that gold prices have been hovering near gold miners' break-even point and many gold miners have reduced their capacity. It will take awhile for them to ramp back up to full production.

Even in this complicated economic world, the law of supply and demand usually prevails. If demand increases (possible scenarios include inflation in the United States or some unforeseen world instability), but supply remains limited, we could see acceleration in rising gold prices.

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Ed-Moy
Lost in all the fuss about gold prices is the fact that there is strong demand for physical gold worldwide, especially in Asia.
Gold,Western,Eastern,physical
370
2013-38-06
Friday, 06 Sep 2013 07:38 AM
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