By Matt Badiali, Editor of the S & A Resource Report
Thomson Reuters just published its annual gold outlook report, so I'm full of interesting tidbits tonight.
According to this report, demand from India, China, Turkey, the Middle East, and Southeast Asia soared in 2013. In China alone, gold bar sales rose 45% to 360 metric tons. The amount of bullion shipped around the world (mainly from East to West) rose 25% to a record $234 billion.
I think this is one of the most important stories of 2013 and the most important for the future.
The bull market in gold began in 2001 and lasted twelve years. Last year was the first year that the price of gold ended the year lower than it started. In 2004, ETFs like SPDR Gold Shares began to show up. This fund actually held bullion in huge, 400 ounce, bars. These funds bought the giant gold bars as investors piled in and sold them as the investors left.
And many, many investors left.
In 2013, we saw the end of the gold bull market. While the price of the yellow metal fell, physical demand rose 15% to 4,957 metric tons. At the same time, holdings of Exchange Traded Funds (ETF) fell by 880 metric tons. That's about 28.3 million ounces of gold bullion on the market. That's equal to about 30% of the total worldwide mine production for the year. And most of it went to China.
According to the China Gold Association, China's private gold demand hit 706 metric tons in the first six months of 2013 alone. That was an increase of 54% over 2012. By the end of the year, demand for gold from private citizens hit 1,132 metric tons. That is forecast to hit 1,350 metric tons by 2017, according to the World Gold Council. To put that in perspective, the total gold holdings of U.S. exchange traded funds (like GLD), are just 245 metric tons.
This is important because China is creating support for its currency.
I'm no currency expert, but I know a few. My good friend Steve Sjuggerud talked about this idea at our first Stansberry Society event in Miami. He is an expert in currencies (he holds a Ph.D. on the subject in fact).
He compared two country's currencies, A and B. Country A was printing more currency at a rapid clip. The more currency out there, the less it is worth. The people in the country were in debt and going deeper every day. Country B's economy was growing at a rapid clip. Its citizens were savers and were buying gold. The country itself bought more and more gold each year.
He asked the crowd at the conference, which currency do you want to own, country A's or country B's?
Of course, everyone said B, which turned out to be China. That's a problem for us. You see, that same choice is being made by countries all over the world.
Right now, the dollar is the world's reserve currency. That means it is held in large amounts by foreign governments and they use it in transactions. But as China's currency gets stronger and backed by more gold, it could easily knock off the dollar.
That would have dire consequences for typical Americans.
That's why I own gold bullion. Don't get me wrong, I'm not burying gold coins in the back yard. However, I do own bullion coins as part of my savings. It's a way of diversifying my assets just in case China takes over as the new world's reserve currency.
Source: The Crux
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