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Readers of the usual perma-bull
gold and silver sites most certainly know by now that the perma-bulls
have often talked about how China is always at the ready to swoop up as much
gold and silver as they can get their hands on. Most of the experts featured on
one of the biggest perma-bull sites, King World
News consistently mention on every down day that buying from China came in to
save the day.
Readers however should know the other side of the
story that the perma-bull websites don’t
often discuss. That is, that if you want to really analyze this consistent
bullet point in the gold and silver camps argument you have to pay attention
to any information that might show a slowdown in purchasing from the
aforementioned China. We already know by skimming the headlines that demand from India for physical
gold has been off this year
compared to other years implying that the Indians don’t feel that gold
is good value at these levels. The story I linked to talks about how World
Gold Council on Tuesday announced a 7 per cent discount on purchase of gold
coins during Dussehra and Diwali. We don’t
see discounts being offered during boom times… we see discounts when
there is a surplus of inventory and a slowdown in purchasing. Remember too
that gold demand in India had plummeted 38% last August according to Business Insider.
Back to the primary topic involving China however.
Some interesting news came across Marketwatch that
all gold and silver investors and traders should pay attention to.
The headline came across Marketwatch.com yesterday
morning. “China’s falling
gold imports hint at rally’s end” The article reads in part;
China might not become the big gold buyer of the
future that many people are banking on, according to some analysts, who say
recent signs of cooling in the mainland’s gold demand could be a bad
omen for now-decade-plus bull market in the metal.
Trade statistics released last week showed mainland
Chinese imports of gold from Hong Kong slowed dramatically in August.
Hong Kong shipments of the metal to mainland China
for the month totalled 54 tons, a drop of 29% from
the 76 tons shipped in July, according to data from the Hong Kong Census and
Statistics Department.
“China’s near-term appetite for gold
appears to be waning as bullion imports from Hong Kong slow,” HSBC
analysts said in a note following the data release last week.
Anecdotal evidence also pointed to the cooling
trend, with one Hong Kong bullion dealer saying the word from mainland clients
was that gold inventories are
saturated.
In this morning’s blog piece from
Marketwatch.com, we also have discussion about how “China cooling may seal
gold’s demise”
which reads in part;
CLSA strategist Russell Napier calculates that China
is the most important factor globally in terms of money creation, responsible
for 40% “of everything created since 2007.”
“With China so important in creating money,
and money supply growth in the developed world still flat on its back, a
slowdown in China augurs for lower inflation — perhaps deflation
— and higher real rates,” Napier told Marketwatch
in an email Wednesday.
Since the Bretton Wood system was dissolved in 1971,
allowing the gold’s value to be determined in the open market, prices
have tended to do well when real rates of interest have been low, and poorly
when they’ve been high, Napier said.
Napier wrote in his email: “With nominal rates
close to zero, the market would be fearful about monetary policy responses
— bad for gold.”
These are stories that investors must take into
consideration when evaluating the intermediate to longer term prospects for
their investments. Don’t always put faith in the typical drivel that
has become common place for the last year or so in the precious metals space
that always applauded the Chinese buyers coming to the rescue every time gold
or silver was hit. With stories like these, keep it in mind when reading any
analysis that talks about how the Chinese are waiting with open arms to buy
any dip. I’m not saying they aren’t but I’m merely advising
readers to do a little more homework and not take anything you may read on
websites that only give you their point of view to continue to push their
meme as gospel. The fact is that demand for physical metal is down in the two
largest markets. Until we see demand pick up significantly, prices for the
yellow metal may be capped.
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