Several weeks ago the gold market took it on the chin…falling from $1,540 per ounce on May 4 to about $1,480 per ounce on May 17. Since then gold has quietly been making its way back up the charts. Yesterday it hit sold for around $1,520.
Gold has been in a bull market since early 2001 when it traded for under $275 an ounce. Back then no one would have thought it anyway possible for gold to rise 560 percent over the next decade. Remember, that was back when gold was still a barbarous relic from an earlier, less sophisticated time. Paper money, and a central banker’s power to manage it, was going to bring about the great paradise.
Now, scarcely a decade into the new millennium, it is paper money that’s on the run. The value of paper, along with the elites who control it, have been debauched by an abundance of monetary shams…namely over issuances in the name of economic stimulus.
The other big trend over the millennium’s first decade has been the massive transfer of wealth from west to east. This big trend is most obviously evident in the rise of China…now the world’s second largest economy, and rapidly closing on the United States as the planet’s top dog.
When you step back for a little perspective every now and then you see things that are so obvious and observable that you wonder how you missed them when you had your eyes down in the weeds. What we are talking about is the convergence of the millenniums two major trends – the rise of gold and the rise of China.
Who knows where this will lead or where it will ultimately end up. Perhaps gold and China could boil over into full meltdown tomorrow. We don’t know. But to offer a look at some milepost markers currently lining the path, and how you can capitalize on it, we bring you today’s guest essay from our friend David Galland, Managing Director at Casey Research.
Why Gold Is Going Higher
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.
for Economic Prism
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