Gold bubble? Not so fast - gold jewelry demand grows despite high price
Everywhere these days, you hear scary projections about soon to come gold bubble. I perfectly understand that many people can't wait for this to happen. We just recently touched the gold bubble topic in Gold, silver and interest rates which explains why rising interest rates are very bullish for gold. The other very popular talking point pushed by bubble crowd is that gold prices have been driven by speculation among big money investors and ETF funds, while physical demand has been very weak. Jon Nadler of Kitco for example, loves those flashy titles, like Mumbai on Gold: Good Buy or Goodbye? and Dubai, Mumbai Cry: Oversupply!, constantly implying that Gulf Arabs and Indians who account for most of the physical gold buying, are staying away because the very high prices. Apparently, the hard numbers and facts tell us something entirely different. Something that gold bubble crowd won't like.
According to the World Gold Council report released last week, the 2010 gold sales are no so weak. Frankly, they are rather strong, with overall demand grown by 9% to reach a 10-year high. The main contributing factors are increased jewelry demand, strong momentum in key Asian markets and a paradigm shift in the official sector. But wait it gets better or worse, depending which side you are on. By far the biggest contributor, 54% of the total was gold jewelry sales, which is 17% higher from 2009 - all while the price of gold increased by as much as 26% in many currencies. Secondly, gold demand for technology uses jumped 12%, in spite of so many bubble folks claiming that gold has very little industrial demand.
And what about big money investors and gold ETFs? Overall investment demand declined 2%, primarily because investment in gold ETFs dropped astonishing 45%. Even with such a huge drop, 2010 was the second-highest year on record in terms of investment demand. And by the way, the ETF demand is picking up as I type, since ETFs and speculators are returning in droves.
India consumers alone purchased more than 745 tons of gold jewelry. China demand was just under 400 tons while the U.S. at 128 tons. That is quite remarkable since China gold consumption has been often quoted by bubble proponents as the only more or less solid support for increasing gold prices. Moreover, it was claimed in some sources, that China is just about to overtake India. While in both China and Hong Kong, gold jewelry demand went up 25% to hit a 10-year high, is is evident that the room for improvement is still huge. Imagine what will happen to gold prices when Chinese consumers start catching up with Indians in terms of jewelry purchases. And they will, believe me. For now, be impressed with these numbers - Indian jewelry demand rose 47% on a year to year basis during the 4th quarter of 2010. Overall yearly Indian jewelry demand rose amazing 69% to surpass 1998 peak levels. In case you are interested, the price of gold in 1998 fluctuated between approximately $270 and $313.
From the above, anyone who still has a last bit of common sense left, can make the only one conclusion - gold is not in a bubble. Savvy consumers and millions of small time investors buy gold jewelry and bullion. And heavier industrial application of gold is here to stay, contrary to what many are saying. Finally, there is a broad base for gold prices even at such levels. Growing Chinese demand will certainly close the gap with Indian demand, and combined with world instability, debt and wide spread problems with every paper currency, support much higher gold prices.
Mon Feb 28, 2011 11:02AM | Copyright: www.bad-credit-advisor.com | More in Gold Investing | Comments (0)
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