Friday, January 21, 2011

Chinese Demand Expected to Support Gold

The metal's had a rough time lately, but Chinese seasonal demand has come in; that force has analysts unfazed by the drop. The Chinese New year starts on Feb. 2nd, and the festival will continue for 15 days. With inflation at 4.6%, traditional demand for gold and a savings rate of about 30%, seasonality has met with the wherewithal and desire to purchase more gold.
“We are entering a period of strong seasonal growth in gold demand and Chinese New Year is a big part of that,” said Brien Lundin, editor of Gold Newsletter. “Physical demand has been supporting the gold prices on the downside even during the typical slack periods, and I expect that upcoming increase in demand will also support the price, but at higher levels.”...

“Chinese gold and silver demand has been phenomenal ahead of the New Year holiday,” said Adrian Ash, head of research at, a leading online service for gold bullion trading and ownership, citing comments from dealers among others.

Shipments have been “heavy” and they began very early, in mid-December, he said.
Mainland Chinese saving accounts denominated in gold have grown quickly with little advertising.

One skeptic quoted later on said that gold tends to fall when physical demand rises, while increases in investment demand accomapnies a run upwards. This take jibes with last year's experience, where an all-out correction drove gold down to $1,040 by early February. The climatic plummet that drove it down marked the low point of the year.

Another skeptic had a rather unusual reason for why gold may go down: food-price inflation. Why would this drive down gold? The answer: because people need food more than gold!

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