zoog
06-11-07, 10:49 PM
I've read through two articles this evening about the global gold market over the medium to long term; one about India, the other about China.
The first article, Indian farmers may lose healthy appetite for gold (http://www.mineweb.net/mineweb/view/mineweb/en/page33?oid=22050&sn=Detail), discusses the continuing migration of poor rural inhabitants into the cities, and the potential decline in their demand for physical gold.
A considerable source of investment-related demand for gold could disappear as millions of Indian farmers move to cities or join industrialisation in India.
The Fortis/VM Group said in a recent Yellow Book article a great gold market driver to watch in the short and longer term, is whether India's rural poor continue to invest in gold during times of stress and transition, or if they will secure their income in alternative ways.
The Indian rural poor still account for two thirds of annual gold purchases in the country, despite its emerging middle class.
Small-scale farmers have traditionally used spare cash to invest in small pieces of jewellery, as they favour gold above paper assets in times of economic and political uncertainty.
But gold - as the most esteemed medium of exchange for the country's rural communities - will come under increasing pressure as India's land use and tenancy changes over the next decade.
Significant amounts of small pieces of gold investment jewellery are likely to re-enter the market as farmers dispose thereof to fund a new start in larger towns and cities.
Of course, in typical journalist/analyst fashion, towards the end of the article they throw in some weasel clauses about alternative scenarios where gold demand might increase.
Meanwhile, China Gold Technicals (http://www.zealllc.com/2007/chinagold.htm) looks at the potential for increased gold investments by the Chinese, especially in the wake of a major stock market collapse.
While the stock mania in China is fascinating to study, stocks are not the only market for capital in China. Just like the rest of the world, Chinese investors have investment alternatives. One in particular, gold, is exceptionally interesting at this moment in time. In Western stock-market history when stock manias collapse, gold tends to soar as stock investors flee the imploding bubble. Will the East mimic this behavior?
In the stock-market history of the Western world, speculators tend to flock to gold when panics and collapses set in. Sometimes gold falls initially when people are scared enough to sell everything indiscriminately, but very soon rationality starts returning to some and they start buying gold. This leads to a rising gold price which attracts the interest of even more buyers. And soon gold is powering higher despite a major stock-market downleg.
And with the great Chinese love for gold going back thousands of years, I suspect the Chinese investors will have an even stronger urge to buy gold when stocks crumble around them than we do in the West. Gold is the ultimate store of wealth and safe haven in any financial-market storm, and the Chinese probably instinctively realize this to a far greater degree than we ever will in the West. Odds are a major Chinese stock selloff would lead to a surge in gold demand out of China.
As I'm sure everyone is aware, the rural poor in China have also been migrating to manufacturing jobs in the cities by the millions.
The peoples of both countries seem to have a very long history of favoring gold, whether in good times or bad. Both countries are continuing an enormous industrialization process, creating a small but growing middle class along the way.
Would the potential increased demand in China outweigh the potential decreased demand in India? And for that matter, why should the fundamentals be different for two countries on a relatively similar track?
The first article, Indian farmers may lose healthy appetite for gold (http://www.mineweb.net/mineweb/view/mineweb/en/page33?oid=22050&sn=Detail), discusses the continuing migration of poor rural inhabitants into the cities, and the potential decline in their demand for physical gold.
A considerable source of investment-related demand for gold could disappear as millions of Indian farmers move to cities or join industrialisation in India.
The Fortis/VM Group said in a recent Yellow Book article a great gold market driver to watch in the short and longer term, is whether India's rural poor continue to invest in gold during times of stress and transition, or if they will secure their income in alternative ways.
The Indian rural poor still account for two thirds of annual gold purchases in the country, despite its emerging middle class.
Small-scale farmers have traditionally used spare cash to invest in small pieces of jewellery, as they favour gold above paper assets in times of economic and political uncertainty.
But gold - as the most esteemed medium of exchange for the country's rural communities - will come under increasing pressure as India's land use and tenancy changes over the next decade.
Significant amounts of small pieces of gold investment jewellery are likely to re-enter the market as farmers dispose thereof to fund a new start in larger towns and cities.
Of course, in typical journalist/analyst fashion, towards the end of the article they throw in some weasel clauses about alternative scenarios where gold demand might increase.
Meanwhile, China Gold Technicals (http://www.zealllc.com/2007/chinagold.htm) looks at the potential for increased gold investments by the Chinese, especially in the wake of a major stock market collapse.
While the stock mania in China is fascinating to study, stocks are not the only market for capital in China. Just like the rest of the world, Chinese investors have investment alternatives. One in particular, gold, is exceptionally interesting at this moment in time. In Western stock-market history when stock manias collapse, gold tends to soar as stock investors flee the imploding bubble. Will the East mimic this behavior?
In the stock-market history of the Western world, speculators tend to flock to gold when panics and collapses set in. Sometimes gold falls initially when people are scared enough to sell everything indiscriminately, but very soon rationality starts returning to some and they start buying gold. This leads to a rising gold price which attracts the interest of even more buyers. And soon gold is powering higher despite a major stock-market downleg.
And with the great Chinese love for gold going back thousands of years, I suspect the Chinese investors will have an even stronger urge to buy gold when stocks crumble around them than we do in the West. Gold is the ultimate store of wealth and safe haven in any financial-market storm, and the Chinese probably instinctively realize this to a far greater degree than we ever will in the West. Odds are a major Chinese stock selloff would lead to a surge in gold demand out of China.
As I'm sure everyone is aware, the rural poor in China have also been migrating to manufacturing jobs in the cities by the millions.
The peoples of both countries seem to have a very long history of favoring gold, whether in good times or bad. Both countries are continuing an enormous industrialization process, creating a small but growing middle class along the way.
Would the potential increased demand in China outweigh the potential decreased demand in India? And for that matter, why should the fundamentals be different for two countries on a relatively similar track?