Chinese New Year typically involves a lot of gold buying, just like the Indian marriage season in late summer and Autumn. How much higher will the price of gold go as a result of the Chinese New Year?
This year’s Chinese New Year (or Lunar New Year) occurs on February 3rd and celebrations will last until February 15th.
Chinese gold and silver buying is typically much heavier ahead of the Chinese New Year; this precious metals buying begins in earnest around mid-December. So the whole of January is a great period of seasonal strength for Chinese gold buying.
It’s true that so far gold has actually sunk about $75 or so in the New Year, but analysts don’t think this will last very long. As part of China’s seasonal gift-giving, the Chinese pass around little red envelopes, and these typically contain some money, and that money might come in the form of gold. How much gold are we talking about here? It’s not clear. But the CEO of Astor Gold has explained that there are two reasons why Chinese gold demand is set to soar.
Why Chinese Gold Demand Will Soar
First, take the fact that China had banned gold ownership for most of the twentieth century. That is no longer the case. The Chinese citizen can now buy gold again.
Second, take the very well-known fact of China’s massive propensity to save (on the order of about 30% of income) – and the Chinese will not want to just keep stashing away paper pieces of yuan.
Third, consider China’s intrinsic inflation rate (the one they are not officially reporting, but which is seen in the intrinsic rise of the yuan since 2005). The Chinese can put 2 and 2 and 2 together – they’ll be even more motivated to buy gold to counter domestic inflation as well.
Chinese Gold-Buying Season
A BullionVault analysis has shown that the January to March period has seen Chinese private household gold purchases climb 22% higher than the previous 9 months. The analysis estimates that this year, the portion of total income saved that will be put toward gold purchases will climb to 1.7% (from a mere 0.8% in 2011).
While that rise doesn’t sound like much, remember that (1) the population of China is 1,330,141,295, or over 4 times that of the U.S. (310,232,863); and (2) this number is set to continue growing year over year. Heck, even just the ONLINE population of China (the number of Chinese with internet access) is already larger than the entire U.S. population.
If this in itself does not add up to a massively bullish case for gold for you, then you might like to purchase silver, oil, or copper, because China’s gobbling those sectors up, too.
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