Gold News

Gold "the Best Investment" in China as 2009 Demand Surges

The price of Gold rose for the third day running on Wednesday, breaking 12-session highs above $1130 an ounce as world stock markets struggled and the Dollar ticked higher on the forex market.

New data from the private-sector ADP payroll company showed a sharper-than-forecast job loss of 84,000 in the US for December, taking 2009 losses to 4.7 million.

Private gold demand in mainland China meantime rose to 450 tonnes in 2009, the China Gold Association said today, up 13.8% from 2008 and beating the top-end of BullionVault's recent 2009 forecast, published in the Financial Times' China Confidential.

The figure likely beats India's consumer demand for 2009 as well, making Chinese Households the World's No.1 Gold Buyers despite Monday's sharp revision by the Bombay Bullion Association to its gold import figures, now estimated at 300-350 tonnes

"With household income increasing, Chinese consumers are buying more jewelry and investing in gold assets. All of these are boosting gold demand," said Zhang Bingnan, general secretary of the CGA, to the China Daily.

The People's Bank of China recently announced its Gold Coin and silver output for 2010, including commemorative pieces for the 16th Asian Games and Xinmao (2011's Year of the Rabbit).

All told, the central bank's schedule for 2010 accounts for almost 3 million pieces requiring more than 58 tonnes of silver and over 20 tonnes of Gold Bullion.

Today the PBoC reiterated its "loose money" stance on interest-rate policy, agreeing at this week's annual conference to target "moderate credit growth in 2010 to back the stable and relatively fast development of the country's economy."

On the domestic supply-side, the Ministry of Industry and Information Technology said today that China's Gold Mining output rose 14.6% to 282.50 tonnes during the first 11 months of 2009.

"Chinese people are buying more gold these days," says one Beijing gold dealer. "There are increased sales in jewelry shops for gold ornaments, coins and bars.

"In fact, many people are now convinced that gold is the best investment asset."

Here in London on Wednesday – where snow disrupted rail lines and kept many traders at home – "Net speculative length has unwound from recent extremes," said a technical analysis from Barclays Capital, noting how non-industry players have cut their bullish betting on Gold Futures and options from last month's historic peaks.

"[Thus] the near-term prospects for gold have improved. Furthermore, with daily momentum rolling higher from oversold conditions and price action having repeatedly held trendline support, odds favor continued gains."

The Euro currency meantime fell towards 16-week lows beneath $1.4300 after a leading central-bank executive said there was no chance of fellow members helping Greece to finance its yawning budget deficit.

"The markets are deluding themselves when they think at a certain point the other member states will put their hands on their wallets to save Greece," Italian paper Il Sole quoted Jurgen Stark of the European Central Bank in an interview.

Across the 16-nation currency union, new data today showed industrial orders falling for the first time in 7 months in November. The Eurozone's PMI Services index lagged analyst forecasts for December, while wholesale-goods price inflation fell sharply.

Gold priced in Euros today hit its best level in 3 weeks and threatened the all-time spike of early December, gaining above €786 an ounce.

The Gold Price in British Pounds rose above a one-month high at £704.20 an ounce as Sterling also dropped back on the forex market, falling from an initial spike to $1.6050.

"Gold will have to consolidate above $1133 before a push towards $1150 becomes likely," says Walter de Wet at Standard Bank.

"We expect the market to remain range-bound ahead of Friday's non-farm payroll data."

Crude oil meantime held near $82 per barrel on the continued cold snap in China, Europe and the north-eastern United States.

Silver also rose, adding more than 8% from last Wednesday's 8-week low to break above $18 per ounce.

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Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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