Gold: Chinese Demand Surges!
As loyal readers already realize, China is the world’s leading consumer of a wide range of commodities. Copper, cotton, aluminum, coal, steel- Chinese consumers gobble up the lion’s share of global production.
And now you can add gold to the list…
Recently released data revealed China became the world’s largest gold buyer in 2013. That’s right, according to the China Gold Association, the world’s second largest economy consumed 1,176 metric tons of the yellow metal last year.
Not only is that the first time Chinese consumption surpassed 1,000 tons annually, it’s up a whopping 41% over levels seen in 2012!
What’s driving this remarkable uptick in demand?
A stunning 28% drop in the price of gold had Chinese bargain hunters on the prowl last year. Gold jewelry, a highly desirable product in China, saw sales surge thanks to the lowest prices since 2010.
What does this highly bullish data mean for the price of gold going forward?
First of all, the yellow metal is reacting positively to the China Gold Association’s report.
As I write, the front month gold contract (February) is up 1% to $1,274 an ounce- the highest price since late November 2013.
Now let’s take a look at a chart…
While gold is undoubtedly trading in a short-term bear market, the opposite is true of a longer time frame. As you can see in the 10-year weekly chart above, the yellow metal is still hanging on to the uptrend line that started in 2005 (blue line).
Will this highly important technical level mark the bottom of gold’s hefty slide?
It’s important to realize that Chinese gold demand is rising to record levels at the same time most miners are struggling to produce it. Remember, miners are reporting “all-in” gold mining costs of $1,150 to $1,450 an ounce. At the current price of $1,274, the mining industry is still facing large-scale shut-ins at higher cost mines.
If Asian gold demand holds up, it’s very likely we see a supply shortage in the gold market…
Will it happen in the next few months?
No…
Near term supply of the metal is abundant. However, a longer-term supply shock is virtually guaranteed unless the price of gold rises to the point where miners can bring higher cost production back online.
Bottom line…
China’s bullish demand figures, along with major technical support area shown above, fortify the idea that gold is very close to a major bottom. At the very least, it looks as though the downside potential in the metal is becoming increasingly limited.
Until Next Time,
Justin Bennett
Category: Gold
