The fall in the price of gold since 2011 has been a bonanza for residents of China and India. They have steadily increased their purchases of gold this year. Gold ownership is moving east.
These traditional gold owners prefer to hold gold in the form of jewelry. Indians especially are gold owners. Fathers buy gold for their daughters’ dowries. It takes gold to get a daughter married off. The Indians are familiar with gold. They understand supply and demand better than residents of other cultures.
Rich Chinese residents have been unable to afford to buy gold ever since the 1930s. But China’s economic growth has created demand for the metal.
Meanwhile, American investors did not buy physical gold, but instead bought ETFs — promises to pay money, not gold — because commissions were lower than coins. But the commodities futures organizations are now facing the lowest inventories of deliverable gold ever. If the owners of contracts for future deliveries — “longs” — start taking delivery, the exchanges will have to deliver digital dollars instead.
Westerners like George Soros and John Paulson have been selling their paper gold positions. Asians are taking delivery of physical gold. You can’t make jewelry out of digits.
Demand for jewellery grew 20pc year on year, the WGC said, up to near–record levels. The “most notable” increases in demand occurred in India, China, the Middle East and smaller Asian countries, it said. The focus of buyers was high carat jewellery with its “connotations as an investment proxy”.
Asian investors remain highly optimistic about gold’s future price, with a WGC survey finding 66pc of Indian and Chinese consumers expecting the price to rise over the next five years, up from 62pc in May. The proportion expecting a fall has shrunk from 13pc to 11pc.
Who is selling physical gold? No one in the industry knows. Peter Hambro, who is a major owner of Russia’s largest gold mine, says he does not know. For the first time in 35 years, he says, people in the industry cannot identify the sellers.
Asian buyers do not care. They are taking advantage of the situation.
That seems like a good strategy to me.