Chinese gold fever

At the time of writing, the price of gold hitting new highs, North over $ 1,430 per troy ounce. Last week I highlighted the Chinese investor demand for the yellow metal as the strongest in years. This view turns to be quite sketch!

Investors are increasingly concerned about runaway inflation and should be. In the author’s home country, Belgium, is the fuel price is hitting new highs every day. Other necessities are expensive, too. The price of many commodities is near an all-time high, which does not augur well for many companies, to see detailed prices increase significantly. This will push difficult assessments, and then store prices. Moreover, as markets traded at an average price-earnings ratio, debt ratio 16 the cyclically-adjusted PE (Cape) closer to 23, which is quite expensive. The Cape is Shiller PE, which flattens out the business cycle in a 10-year period, which gives a clearer view of stock market valuations. Markets are far from cheap, despite what many mainstream media outlets want us to believe.

Smart investors know better. The remote sensing a market top. If the oil price North of $ 100 US per barrel reasonable investor is looking for ways to protect their wealth potential market correction, move their assets in fixed assets. It goes without saying that gold is the most obvious beneficiary of this secular traits. Investor demand is great, and the yellow metal is regularly hitting new peaks.

Gold demand is driven mainly by the emerging markets. In some parts of Asia is rampant inflation. Particularly in India, the prices of foodstuffs and other staples going through the roof. The prices of certain vegetables and spices have risen more than 100 percent. Due to inefficient infrastructure and logistics Office in India, food cannot be transported easily and perishes on their way to the other side of this great country. China is one of the primary goals of the Communist Party to maintain social stability and to avoid unrest. In this context, China’s leaders are now how important it is to keep inflation in check.

In order to protect their wealth from rising prices, many Asians are investing their hard-earned money on precious metals. The latest news from China confirms this: during the first two months of 2011, Chinese imported 200 tonnes of gold, which is as much as in the whole year 2010! And it’s just individual investors demand. This is not the expected central bank purchases, accounting for the whole of mainland China Gold production (China is now the second largest gold producing country in the world). Chinese gold fever has caused gold demand to triple the previous 10 years, according to the World Gold Council. The Chinese are going to catch the Indians as the world’s largest gold consumer.

These figures show that today’s demand for gold in China exceeds current demand, pushing up prices continuously.

And we are still far from a gold bubble. Mainstream media still not touting the gold as a sensible investment. Demand for Western retailers, despite increased interest, is not extraordinary, and there is still much room for central banks – particularly the emerging markets — to increase their gold holdings and diversify in the yellow metal, to the detriment of the US dollar and other fiat currencies. As the chart above shows, price USD gold rises slowly but steadily, without exceeding the amount of upside. It is clear the pattern common to other phases of the secular bull markets. We are currently in the institutional phase of Gold bull market high. We are far from a peak. Suddenly, before the masses wake up to this, the price of gold will have increased to levels that are unfathomable today.

I expect the price of gold to hit $ 1 600 per troy ounce at the end of 2011, which is on the cards if the present trend continues. It will not be a smooth ride, but, as I expect the volatility rises this year. Gold is traditionally weak summer and probably correct in early August, but these are excellent opportunities to buy.