Asia’s Return to the Golden Era

The fact that the Asian economies are rising much more rapidly when compared to that of the western economies is something that should not be taken lightly or regarded as a phase that will pass.

Countries such as China, India, Indonesia, Singapore and Japan  are seemingly bound together on a tangent that are slowly making them economic powerhouses and coupled with the fact that China has been actively recruiting smaller economies from Asia such as Malaysia, Singapore, The Philippines and other rising South East Asian economic stars such as Indonesia, Korea and Japan to join forces with them towards creating a ‘contained economy’ has been effectively moving them towards secure financial states through accumulated reserves from foreign trade and placing them in a strategic position to buy precious metals (especially gold) for investment purposes.

Most of the Asian population consist of serious savers who live within their means and most of these governments do not intend to change that trend which is evident in their ignorance of signals emanating from western governments and financial institutions to boost the consumer spending levels of these Asian countries who are closer to real economies that are stable in comparison to their Western counterparts.

Another factor that cannot be ignored is the association between these governments and the Russians lead by the popular Vladimir Putin who is an economic realist that follow the traditional economic regime of ‘the more their populations saves, the more money their banks are filled with to support infrastructure that subsequently attract Foreign Direct Investments creating an influx of foreign currencies that flow and into these robust economies allowing them to buy more gold and other precious metals to ensure that their currencies are supported.

The governments of Asia are encouraging saving based on the positivity that lies behind saving in the form of precious metals that is being coordinated by the Shanghai Cooperation Organization which is related to Russian financial institutions that are helping these Asian countries to regain and secure Asian assets that were actually theirs to begin with a few hundred years ago through the purchase of precious metals from the west. The total purchase of physical gold from Asia when prices are attractive is massive with India, China and Russia paving the way getting the other Asian countries such as Malaysia, Singapore, Indonesia and Taiwan following close behind.

These countries have balanced trade deficits and their exports are almost at balance with national debts being stabilized with each passing year. As the EU heads towards a total breakup and Trump leaves the US financial system in disarray, confidence in trading with the EU and the US has diminished and due to the potential these fast growing economies are showing, investors prefer to put their money where the economic fire will burn longer and brighter.

These events are evident and based on the amount of cash for gold bullion being spent, essentially returning foreign cash to the host country in exchange for their gold bullion, a growing trend with the majority of available gold flowing out of the US and the EU; it won’t be long before the US and EU have nothing substantial to back their currencies with as gold is the only real money that will retain the power to buy in the final chapter of the money story.

China Demands on Gold and Other Metals Will Change Dynamically

After a tough year for the Chinese economy, politicians seems to have a clearer panorama for upcoming seasons. While this country remains as the biggest gold buyers in the world, indicators could be changing due to the influence of local industries.

A recent announcement from the Chinese Ministry of Industry and Information Technology said that gold demand growth is expected to decrease to an annual average of 4 percent regarding the four upcoming years.

This still means that China will consume more gold than never before, only with a slowdown in growth. The same announcement shared with the media some estimates regarding consumed tons.

The Ministry expects to consume 1,200 tons in 2020, representing an increase in comparison with 2015, when 986 tons were consumed. The domestic output is also expected to increase, with an estimated included. In 2020, 520 tons are expected to be produced, in comparison with 450 tons during 2015.

Relevant Economy Changes

The same announcement from the Chinese government exhibit estimates not only for gold consumption but for others metals as well. The data includes copper, aluminum, lead, and zinc.

These changes come from a plan for non-ferrous metals’ needs, applying more control on what the country truly demands. This plan is a response to the wild backlashes suffered by the Chinese economy in previous years, linked to poor control on the productive mechanisms and slowing exportations.

Copper annual growth for the 2011-2015 period was at 8.9 percent. The new estimate for the upcoming five-year period is around 3.3 percent. For aluminum, annual growth will go down from 14.4 to 5.2 percent.

For lead, annual growth will go down from 0.8 percent to 0.6 when comparing 2011-2015 period with the upcoming 2016-2020 one. Zinc demand growth will cut down in half, going from 3.5 percent to 1.7.

What Does This Mean for the Markets?

Pessimist investors will see a tragedy here but there is nothing massive happening, actually. Demand is not decreasing, only its growth rate. China will require massive amounts of minerals, more than the country is requiring right now.

In fewer words, the Chinese industry will still have a growing demand in the upcoming five years, only slower in comparison with the actual one.

Gold and other metals prices will have the window same to keep raising if the investors have enough interest. The markets could receive this news as a bad one but notice that the domestic output will go down as well, making China buy more than before.

Numbers aren’t lying. The panorama remains very positive. With a decreasing production output and a still-growing demand, the country is headed to demand more metals during the five upcoming years.

The data at the beginning of this article is a valid proof. Domestic industry will have to demand more gold in comparison with previous years, where production was higher. This will directly influence commodities and mining stocks.

Investors also have to remember that China is suffering mineral shortages, partially caused by several mines’ closure. This is an important factor that will gain relevance in the upcoming years when the demand increases.

Why has Gold Fallen from Grace?

Anyone who has been in touch with the investment market is in one way or another aware that the prices of precious metals is below expectations and off lately it dipped below the 1,200 USD mark after a good 6 % jump early on in the year leaving speculators bewildered on which way to go. If we look at 2015, gold lost by about 12 % and half way through 2016 gold still does not seem to want to recover and the pessimism surrounding the shiny yellow metal is only making things worse.

It can actually be said that for the first time gold has suffered just as much as other commodities instead of it being regarded as a safe haven as it usually is. Instead, that position has been taken over by the attraction of the capital markets which governments are making attractive to stimulate their respective economies. Added with the fact that the Asian Gold exchange has come at an unlikely time, due to which indexes are not reflecting what they are supposed to reflect, the lack of trust by some quarters and the exodus of gold into the Asian market has obscured the performance of the shinny yellow metal. The price projections for gold does not look good indeed with Citi Corp estimating the price would fall to below $1,000 with the only positive projection stemming from HSBC at $ 1,205, the rest including ABN Amro, Agricole, Deutsche Bank, Societe Generale and BMO are all not expecting gold to pass $ 1,050.

Although this may sound like bad news to most gold buyers have been waiting to unload, the truth is that it is actually god news and it’s time to buy the precious metal again because it allows those in possession of physical bullion to lower the average cost of each ounce that they are holding on to. If investors are able to bring the average cost per ounce of their holdings to below or close to $1,100, unloading at $ 1,200 would not be difficult as it will be able to provide a minimum return of 8 % which those who have holdings valued at $ 1,200 per ounce would have to wait until prices are at $1,300 to earn the same returns.

Thus, for those who acquired their bullion for anything above $ 1,200, falling gold prices could be seen as good news as they would be able to reduce their costs significantly and would not have to wait till the prices of gold to soar to make a tidy profit. Whatever it is, a gold bull run is on the horizon and it is not a question of if any more as it is a question of when.

The Feds would not be able to continue the current rate hikes as it would have negative effects on the long run and China’s slow growth is seemingly coming to an end as the Chinese government attempts to prop itself up to stand in for the USD and by the looks of it, they might just manage to do it with all the support it is getting from regional counterparts.

Golden Risks

Although gold investments can be regarded as one of the most tempting venues for investors to venture into with an aim to bump up their investment returns with a commodity that is largely considered safe, it is not exactly as solid and sure as most people think it is.

As a matter of fact, gold should not be even be considered as an investment, it is a hedge, and as a hedge it will always remain and the same goes to silver, platinum or even palladium. It is a hedge that provides a little relief against the risk of losses suffered from other asset classes which includes property, equities and bonds. Gold and other precious metals have always been utilised as a hedge against the pressures of inflation and that same thinking holds until today, despite markets being totally unpredictable and even senseless at times. Basically, owning gold, gives back people who own gold the purchasing power that they lose because of inflation and the truth is that in economics, inflation is a constant as money will continue to depreciate as more and more o it is printed.

The reason for this fear is largely due to the fiscal and monetary policies being executed by the federal reserve due to high federal deficits spending coupled with interest rates kept near zero value, which actually makes gold attractive as most other investments do not have the ability to keep up with inflation.

The simple equation behind this reasoning is when governments offer real interest rates that are negative, that will be exactly what investors will be earning based on those rates and if we were to remove the CPI numbers we end up with a deficit spending minus fiscal slashing causing gold’s value to increase based on that country’s currency. The reverse applies if at all the interest rates were set to 2 percent higher, because if that was affected, the inflation rate it would advocate a decrease in prices of gold.

However, these are just theoretically correct and although they seem to hold true in most instances, there are times when they just do not work as they are supposed to. Sometimes the increase in gold prices are driven by fear and would have nothing to do with interest rates, when the majority of people start having doubts about the direction of the financial system, they abandon most other commodities in favour of gold and the same can be said to happen when there are regional armed conflicts or even terrorist attacks.

Other factors that drive gold prices is demand and a lot depends on the economic conditions in China and India, who just happen to be the world’s biggest gold consumers. Any changes in demand from these two economies have a significant impact on the prices of gold. However, these demand pressures typically attract new supply and therefore even when demand is high, prices have the potential to go down due to new entrants into the market on the supply side.

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The Bullion Secret

Although there are banks that are honest about their gold bullion reserves, there are some who are not only secretive about their bullion reserves, but misreport it. It is a common fact that most central banks keep the actual amount of gold reserves a secret, some are even believed to not have any and the US Fed is one of them, and the incident with Germany wanting their gold bullion bank and the US central bank being unable to deliver (citing transportation as the problem – while they sent people to the moon without much problems) – the issue only got bigger.

Some banks are more tactical about the amount of gold bullion reserves that they have and they usually cite that it is against bank policy to divulge such information, while other banks beat around the bush with some just ignoring the question entirely. So, the question that needs to be asked here is – WHY? Why are these central banks so secretive about how much gold they have? The answer is actually very basic, if a central bank does not have sufficient gold reserve, what is their money backed up with? Thus, if a central bank declares that it has very little gold, the value of that banks domestic currency falters as in, people lose confidence in it despite the fact that the gold standard has long been abolished.

The fact that these central banks are expecting the gold standard to return in the near future is almost undeniable. The fact that most countries are printing money with anything to back up their currencies is the core of the problem. If we were to take a gram of gold for every 100 units of paper money for any given nation, the stark truth is that these countries would have dispose of more than half of their printed money or reduce its value according to how much gold they have. This was the primary reason that the US was the first country to divorce the gold standard, it was simple because they did not have enough gold reserves to back their currency up based on the pegged value at that time.

Gold bullion is fundamental to currency systems or the world’s financial system risks collapsing under its own weight. The current situation attests to that fact as we may observe the volatile conditions of the current financial systems. This situation cannot go on as money has become meaningless and a false economic environment has enveloped the world, an environment that advocates a financial system that is practically meaningless. The prices of gold that are based on the dollar is currently at what most people are ‘believing’ to be the ‘real value of gold’ when in actual fact, gold is gravely undervalued, if we were to take the amount of currency that is in circulation. So for those of you who would like to secure your future, your best bet is to buy physical gold or silver bullion and keep them safe until the time comes.

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Gold Industry Is Getting Stronger Despite Low Prices

With a bearish gold market, investors are losing their nerves. Many already bet against the precious metal. But, some can see further than the negative (are pretty naive) forecasts that are pretty common on the internet. The low prices are just an effect of the investors taking odd decisions.

Surely you already hear or read that “gold is the preferred safe-haven during financial crises”. Well, there are several crises going on worldwide but, this time investors choose the growing United Stated Dollar. The usual behavior wasn’t followed. So, prices are dropping.

Despite all the drama produced by the falling gold prices, great things are occurring in the precious metal’s industry. Two countries are the main characters of the good news: Australia and India.

More Investments In The Search Of Effectiveness

With an everyday-stronger US Dollar and a dropping Australian currency, gold miners have found the perfect opportunity to boost their profits. By now, the taken decision was to make several investments. Investments seeking major efficiency and better opportunities. This money is now destined to expand their projects in a smart way, taking advantage of the actual low costs of exploration and technical studies.

Mr. Jake Klein, chairman of Evolution Mining, said to The Australian Financial Review that “in a strange way the tougher times get, the more opportunity presents itself.” Said that, many big miners are now buying promising projects with 150.000 – 250.000 ounces-per-year estimations.

If gold prices go up in the next months and the Australian Dollar remain low, domestic companies would get extremely high profits, allowing further purchases and technical improvements.

India’s Growing Importation

These days, India seems to be the gold’s savior. After China’s market collapse, Asian imports decreased in a relevant way but, the Hindu country still buy gold in big quantities and the demand keeps growing. In fact, it’s calculated that 400 metric tonnes were imported to the India since the start of the year. That represents an increase of 100 metric tonnes from the same period of time the past year.

What seems odd is that the demand keeps growing despite reports about massive inventories of the precious metal. Local experts declared to the international media that dealers and jewellers already have huge stockpiles of gold. Some think that is because the Hindu festival is coming and the merchants are preparing themselves to this season.

But dealers and jewellers have the minor representation on the demand scale. 60 per cent of the gold’s importations and consumption belongs to the farmers. Hindu farmers rarely have a comfortable access to the nation banking system. So, they use the precious metal to store their wealth in a way they see appropriate.

Back to the commerce topic, the Hindu festival season represents the most volatile period of gold consumption in India. Thanks to tradition and family rites, gold sales sky-rocket during this time of the year, which starts in September. That can be a good reason of why dealers and jewellers are demanding and hogging all the gold they can afford in times like these when gold consumption is low.

Metal’s Rising

As always, gold doesn’t remain low for many long. Yes, gold prices are falling. But, with severe financial problems in sight, investors will think again. By the other hand, the mining industry is getting more effective at the same time that cost is dropping. Australian miners can (and will) use that domestic surplus to take a step further is their business.

Aligned with miners’ desire, Hindu traditions take relevance again (according to local observers), which can make India the biggest gold importer in the world in a few years in the future. The financial world must remember: gold always survives.

Is Gold Against Western Central Banks?

There is still obstinacy against the concept of the gold as one of the safest investments. Many economists and politicians are loath to accept the gold as the right way to composite the nation reserves and backup the currency. They just consider it as a nice way of saving that can be used by investors. Why is that happening yet?

Central banks and institutions are constantly making a gain through the fiat currencies and their fragile structure and behavior. Fiat currency can suffer severe inflation or deflation situations, due to its non-existant intrinsic value. That happens really often, and during that process, many countries and organizations profit.

The whole image adopted by the gold through media manipulation has modified the mindset of many investors. The market put the precious metals in the commodities sector, making people forget its evident and strong relationship with monetary and currency affairs.

One of the main aspect that everyone has known and remember on the daily basis is that the gold can’t be devaluated by a Central Bank’s policies and decisions. In that way, savings and investments are independent of financial and political measures. So the assets remain safe against possible manipulations or misguided judgment by public officers.

Now China is about to suffer a Great Depression-like crisis due its recent stock market crash. Thanks to the important loss of relevance in the gold reserve subject, they Yuan will suffer and there is going to be a deflation process. The Chinese economic machine will take care of delivering deflation to other countries through the pressure applied to commodities.

The import of cheaper commodities into the United States from China will strengthen the Dollar even more, creating displeasure inside the Federal Reserve. There are several proposals from the FED to devaluate the currency to create stimulation in the domestic manufacturing sector and boost exports. With an even stronger Dollar, this intention is clearly frustrated.

Smart investors will look gold closer and stay away from unstable currencies. The China’s purpose were established the Yuan as an alternative and viable reserve currency for investors and countries, so this situation represents a mishap. By the other hand, there are some investors who are thinking about China and a possible selling of its gold holdings between the market collapse panic.

The People’s Bank of China (the Chinese Central Bank) has already taken many measures to counteract many of the recent crash’s effects. Experts stated that the applied policies were well oriented and are going to have relevant results anytime soon. Now a gold revaluation is mentioned widely. It can work to make stable the economy and help against the actual crisis.

But that kind of revaluation means a threat to the US monetary interests. The Yuan gold price can rise up in any moment as a viable measure to fight the damages inflicted by the stock market crash. Also can greatly help with the Chinese intention of strength the Yuan’s image in front of the US Dollar at the international currency markets. For the Chinese Government, sooner or later, the Yuan will become a reserve currency.

Thanks to that and the conversations between the PBOC and the International Monetary Fund (IMF), China release its first gold reserves number since 2009, showing to the world that they have 1658 tonnes. The forecasts were much more optimistic than that, but those numbers still represent a great improvement of almost 60% of the increase.

Neither China nor the US are going to have a serious discussion about the subject. Powerful Central Banks around the world will keep alive their fight against the gold and its relevance inside monetary affairs. But China needs a domestic change to ease the upcoming impacts.

Gold Prices – an evolution of Ups and Downs

The Great Depression that affected the world, followed by world war 2 which was met with the cold war soon after and again when the first and second oil crisis strapped the world, all of which happened in the past century These phenomenal economical setbacks set the Dow to Gold ratio to a value of 4 regardless if the economies of the world were improving or vice versa. This ration took a new negative turn when it fell to 8 in early 2009.

This event sent out a signal that turned the gold market into a raging bull as investors and hedge fund managers tried to secure their asset by buying gold. The mass gold buying and gold selling frenzy caused the demand for gold exceed the supply. The precious metal trade and industry was experiencing the biggest growth of all time while the economies of the world started to collapse. Gold behaves the opposite of stocks in terms of reasons behind the increase or decrease in its prices.
The indicators that influence the value of the gold bullion is commonly referred to as stock though the behaviour of stocks and gold bullion vary greatly. Gold is regarded by some as a store of value which goes without saying does not experience growth whereas stocks are regarded as a return on value and deemed as positive or negative revenue. Stocks and bonds on the other hand are said to differ as they usually pay out the best returns during times of peace and political stability when the economy of a region is experiencing positive growth. At the same time gold behaves differently as it only becomes more than just valuable during times of instability and social unrest.

This phenomenon occurs due to the fact that people usually abandon paper currencies, stocks and bond as economies collapse as these things eventually become practically useless as opposed to gold, silver and other precious metals whereby the tangibility of it is retained. During times of war precious metals in any form are considered ‘real money’. The gold price peak of 1980 is a typical example of what transpires when uncertainty deals the calling card.

The Soviet Union’s invasion of Afghanistan during that year was deemed as an expansion of communism by many and set of a gold buying spree by the general population of the free world during that time as buying gold in times of uncertainty is a common practice amongst people with money.

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