Chinese Investment Gold Demand Soars
People have been trying to determine why gold and silver prices have soared since Valentine’s Day this year. Now we know…
People have been trying to figure out why, since Valentine’s Day this year through last Friday, the price of gold has soared more than 20 percent, and the price of silver has jumped almost 29 percent. (Note, however, that prices early this week are down from last Friday’s closes.)
We now know what happened. Demand for gold has been so strong from the Chinese government and private citizens, already the world’s top gold-consuming nation, that imported supplies have not kept up with demand. Chinese people want to own gold to protect their finances against weak real estate and stock markets and the risk of a further decline in the purchasing power of the Chinese yuan currency.
It turns out that, being unable to purchase sufficient physical gold for immediate delivery, the trading volume on the Shanghai Futures Exchange has increased more than two hundred percent over the past two months. Chinese citizens are willing to take delayed delivery of their gold so long as they can lock in the purchase at current prices.
The shortage of physical gold for immediate delivery has led the Chinese government to begin a media campaign urging citizens to purchase silver instead of gold. Demand for physical silver has already been growing strong this year, as it is used to manufacture solar panels and other photovoltaic products in India.
Between the Shanghai Gold Exchange, where those who purchase a contract take immediate delivery of physical gold, and the Shanghai Futures Exchange, their combined average daily volume over the past two months now exceeds the average trading volume of the New York COMEX. Effectively, that now makes Shanghai the world’s second-largest gold trading market after the London Bullion Market Association.
These latest trends are likely to continue to put further pressure on rising gold and silver prices, though this will not occur in a straight line. Even in bull markets, there are periodic bouts of profit-taking and other pauses and contractions.
However, one caution to keep in mind. The value of an ounce of gold or silver is constant. An ounce of each today is the same metal as it was a year or a century ago. What really has occurred this year is that the value of the U.S. dollar (and all other fiat [paper] currencies) has declined.
Let me give you one example of what that means. The Cadillac CT4 base model manufactured right here in Lansing, Mich., where I live and work, would have cost 17.4 ounces of gold on Valentine’s Day. Last Friday, its price had fallen to just over 14.4 ounces of gold.
Answer to the Previous Trivia Question
Last week, I asked: What is the only current U.S. paper money issue to depict the exterior of a building not in Washington, D.C.?
The answer is the current $100 Federal Reserve Note, which shows a reverse vignette of Independence Hall in Philadelphia.
This Week’s Trivia Question
Which former U.S. Mint Chief Engraver designed the reverse of a British coin series that features the current King Charles III on the obverse? Come back next week for the answer.
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