Emerging Markets’ Affinity for Gold
In recent years, emerging markets have been driving the gold market. China and India combined account for over 50% of global demand. The reasons for this include: • A growing middle class with rising incomes
gold to give the Renmimbi (the Chinese currency) full convertibility - each unit of currency is to be backed by a unit of gold.
• Strengthening currencies making gold more affordable
“China wants the Renminbi to be backed with a huge percentage of gold, thereby making the Renminbi the world’s best and most trusted currency.”
• Cultures of high saving rates
Richard Russell, Financial Historian.
• A legacy of distrust of paper money due to the Asian currency crisis in the late 90’s • A growing distrust of Western currencies and sovereign bonds (debt)
“While the gold affinity in China is substantial, annual consumption per capita is still only 0.4 grammes. Given the savings ratio of almost 35% and the rising wealth, gold consumption has to increase by default. We believe that the growing relevance of the Chinese middle class for the gold market is not fully appreciated” Special Report – Gold, Erste Group Research, Austria, July 2011
China’s plan for a more dominant position in the global economy is also driving gold demand. As part of this plan, the Chinese currency plays a crucial role. Many gold analysts believe that China plans to buy enough
G O L D H O L D
“I believe with 100% certainty that the Chinese are now clearly on a path to accumulate so much gold that one day soon they will be able to restore the convertibility of their currency into a precious metal”. Porter Stansbury, Stansbury & Associates.
Chinese citizens had been banned from owning gold until 2002. Now the Chinese government is actively encouraging its people to accumulate physical gold through state sponsored advertising and by opening state sponsored bullion retail units across the country. The Chinese made available the first yuan-denominated spot gold contract called the Renminbi Kilobar Gold. Dow Jones Marketwatch reports that analysts see it as “a step toward making the yuan a global reserve currency.”