Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Trump Stocks and Crypto Mania 2025 Incoming as Bitcoin Breaks Above $100k - 8th Dec 24
Gold Price Multiple Confirmations - Are You Ready? - 8th Dec 24
Gold Price Monster Upleg Lives - 8th Dec 24
Stock & Crypto Markets Going into December 2024 - 2nd Dec 24
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

A New Gold Rush Begins For Emerging Markets

Commodities / Gold and Silver 2010 Oct 11, 2010 - 03:07 PM GMT

By: Investment_U

Commodities

Best Financial Markets Analysis ArticleTony D’Altorio writes: Ten years ago, the western world’s central banks were selling gold from their vaults just as fast as they could… at a rate equivalent to 10% of annual demand, about 442 tons.

They didn’t see any further need for such an ancient symbol of monetary stability in the 21st century. After all, it paid no yield; it just sat there, incurring storage and insurance costs along the way.


So they opted instead to fill their vaults with “safe” sovereign debt, with its yields and interest.

Fast forward to today, and that same investment looks far from reassuring. And central bankers are finally beginning to see the light.

They now understand the value of gold, a store of value for 2,000 years and one free of liability.

Central banks are no longer selling gold; in many cases, they’re buying it. This makes for one of the most important developments in recent history for the gold market.

Even overlooking its psychological boost, it has removed a very real, very large source of supply from the market. In Europe, for example, central banks have all but halted sales of their gold reserves, ending a run of weighty disposals averaging 388 tons every year for over a decade.

From 2004 to 2005, the continent hit its peak selling 497 tons of the shiny metal. Compare that with the 6.2 tons it has sold so far this year, down 96% from 2009′s total.

Gold’s Recent Spike Due to Major Power Shift

Gold’s recent ascent to $1,300 an ounce also comes from a major power shift.

As Asian economies grow, their central banks and sovereign wealth funds have begun stocking up on bullion. This reflects the importance of gold in the region’s culture and history.

China gave the clearest sign of this new trend last year when it almost doubled its gold reserves. With 1,054 tons, the country has become the world’s fifth-largest holder of the metal.

Yet only 1.6% of its $2.5 trillion of reserves is in gold. If China increased the proportion of that gold to the world average of 10.7%, it would need to buy some 7,000 tons more. That equals three times what they mined globally last year!

More recently, other countries – including India, Saudi Arabia, Russia and the Philippines – all announced big additions to their official gold reserves. And even smaller countries like Sri Lanka and Bangladesh have made small purchases.

Precious metal consultancy GFMS says that central banks – led by emerging markets – are, as a whole, buying it up for the first time since 1988 this year.

That emerging market trend will likely continue too. The proportion of bullion as a percentage of official reserves in the BRIC countries, for example, averages just 5%. This compares with over 50% in the U.S. and most European countries.

Some countries like Russia and China may even be buying all of their own domestic gold mine output. That says something, since China now produces the most gold and Russia claims another large chunk.

Put simply, production from their mines will never hit the global market, thus supporting gold prices.

Gold Has Nowhere to Go But Up

Investors shouldn’t expect emerging markets’ central banks to make large purchases elsewhere though. In order to keep gold prices low for as long as possible, they have to buy more conservatively.

The global gold market simply cannot support large purchases. The entire global gold supply amounts to less than $200 billion a year, while global foreign exchange reserves come to $8.5 trillion.

So emerging market central bankers will wait for opportunities… like India’s 2009 purchase of 200 tons of gold from the International Monetary Fund.

And with the continuing problems in the periphery of Europe, more opportunities could arise. For instance, Portugal has over 80% of its reserves in gold.

It may have to sell some of that off in order to stay solvent, considering its current financial problems. And that would just shift economic power to the emerging world that much more.
With all those factors at play, gold can easily gain more. Adjusted for inflation, current record prices are far below what they touched in 1980: about $2,300 in today’s money.

Why Now is the Time to Invest in Gold

Gold even has famed hedge fund manager Paul Tudor Jones’ attention, who normally doesn’t like gold. He wrote last year: “I have never been a gold bug. It is just an asset that, like everything else in life, has its time and place. And now is that time.”

Investors can join the new gold rush through stocks such as Randgold ADR (Nasdaq: GOLD), which has risen about 28% so far this year. And there are, of course, ETFs like Market Vectors Gold Miners ETF (NYSE: GDX) and the Market Vectors Junior Gold Miners ETF (NYSE: GDXJ), which focuses on smaller mining companies.

Or, SPDR Gold Shares ETF (NYSE: GLD), a so-called paper ETF, claims to hold bullion in storage. But for investors who don’t trust any such thing, physical bullion and/or coins make excellent gold investments as well.

Source: http://www.investmentu.com/2010/October/an-emerging-markets-gold-rush.html

Tony Daltorio

http://www.investmentu.com

Copyright © 1999 - 2008 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email: CustomerService@InvestmentU.com

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Investment U Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in