The gold price is continuing its consolidation phase around $1,500 per ounce. Gold struggled slightly in trading yesterday, partly in response to new figures released by the US Bureau of Labor Statistics, which showed that the number of workers filing new claims for unemployment benefits fell by 29,000 last week; economists had only expected a decline of 18,000.
Comex gold for May delivery settled at $1,492.20, down $3.40 or 0.2%. The silver price declined more sharply, with the May contract losing 16.7 cents (0.5%), settling at $34.927 per troy ounce.
The significance of Chinese gold buying is once again highlighted in the World Gold Council’s latest report, released yesterday. China has now overtaken India as the world‘s largest gold buyer in the first quarter of this year, with the country’s investment demand for gold bullion more than doubling during this period to 90.9 tonnes, where Indian investment demand was 85.6 tonnes.
However, at 206.2 tonnes for the first quarter, Indian jewellery demand is still outstripping jewellery demand in China, which stood at 142.9 tonnes for the same period – though Chinese jewellery demand is growing at a pace of 21%, compared with 12% in India.
Chinese citizens are buying gold as a natural consequence of their increasing wealth, but also as a hedge against rising inflation. The Chinese government pegs the nation’s currency, the yuan, to the US dollar – meaning that the country has effectively been importing America’s ultra-loose monetary policy. Absent developed international markets in yuan-denominated assets, this has contributed to a growing inflation problem in China.
Moves by the Chinese government to clamp down on property speculation have also encouraged more Chinese to buy gold as an alternate investment. Cheap money and government stimulus has led to rocketing home prices in the nation’s cities, and has also contributed to a boom in construction. But the supply of new residential properties is far outstripping the demand, meaning that some Chinese towns are effectively ghost towns.
News that the Chinese are pressing for the new head of the International Monetary Fund to be “more representative of emerging market economies” is once again confirmation of that country’s growing self-confidence on the international stage. Western investors should take note.
