This Month in Gold – March 2011

China Gold Demand Growing at “Explosive” Pace
Reuters – More detail is provided on the “explosive” growth of gold demand in China. Zhou Ming, deputy head of the precious metals division of Industrial and Commercial Bank of China, the world’s largest bank by market value, explains, “As [the] Chinese get wealthy, they [are] look[ing] to diversify their investments and gold stands out as a good hedge against inflation.” He also noted the “frantic” demand for non-physical gold investments. Any form of gold buying benefits the price of physical gold – but the Chinese, with a strengthening financial system, are not as concerned about counterparty risk as Americans. Overall, China became a major importer of gold in 2010, despite its still-massive mining output. This comes as the Chinese government tries to cool the property market and encourage more widespread precious metal ownership.
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Barrick CFO: Central Banks May Shift More Reserves Into Gold
Wall Street Journal – The CFO of the world’s largest gold mining firm, Barrick Gold Corp., has noticed a “sea change” in the behavior of central banks: they are liquidating their post-crash dollar stockpiles in favor of gold. He says the central banks are concerned about their vast dollar holdings, but don’t see any viable paper alternatives. Mining firms follow central bank policies closely to allow them to effectively hedge their mining operations. This development is welcome news to Barrick, though it is also concerned about the resulting strength in foreign currencies, such as the Australian Dollar and Chilean Peso, relative to the US Dollar.
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Investors’ $102B Precious Metals Wager Shows Bull Market Intact
Bloomberg – In early February, gold was still in its holiday doldrums, but certain signals were already pointing to the rally we’ve subsequently experienced. Bloomberg’s top 5 analysts by past accuracy released forecasts which, on median, see gold rising 20% this year, and silver 24%. They noted silver’s turn of fortune, from the dark days of the phase-out of photo paper to today’s high demand from the electronics industry. One analyst remarked, “I had to chuckle when I saw reports that it was over for gold.” Hedge funds still hold nearly three times as many ‘long’ or ‘bullish’ futures contracts on gold than the 20-year average. And famed shop Paulson & Co. is still the largest investor in GLD. It appears that in this last correction, the smart money wasn’t selling.
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