This is an exclusive guest post by Jacob Harrison of Australian Bullion Company.
Many industry analysts are predicting that a global and potentially catastrophic shortage of gold is just around the corner, perhaps starting as early as next year. So what are the warning signs that these analysts are seeing and why are they having trouble sleeping at night?
There are a number of variables that come into play but the overriding theme seems to be that global debt levels are at unprecedented high and at the same time the global economy is contracting. You don’t have to be a highly educated economist to understand that these two opposing forcing have created an unsustainable economy. Add to this the fact that market activity reports for gold indicate that the global demand is draining available supplies, and a gold shortage could be on its way.
For five years now the Asia-Pacific economies have held strong despite the financial crisis in the United States and the European debt crisis. Now economists are saying that the Asia-Pacific economies are teetering and could reach a tipping point in the very near future. It seems, after all, that they are vulnerable to other economies collapsing around them. Combine this with the fact that China’s economic growth rate is slowing considerably and the concerns about the feasibility of fiscal restructuring in Europe and the United States and you’ve got a high level of instability and borderline paranoia.
Chinese Demand for Gold
In the first half of this year, over 315 tons of gold was imported into China. That’s over 10 million ounces, more than one-third of all gold mined in the entire world during that time. Knowing that it often takes several years for the Chinese government to report such activity, the actual amount of gold imported into China was undoubtedly much higher than that. The Chinese government is also recognizing the demand of citizens for easier access for purchasing gold and is expected to have at least one new gold exchange in place by the end of this month.
The demand for physical gold by Chinese citizens is expected to grow even stronger as the result of a recent scam on 5,000 Chinese investors. These investors thought they were purchasing gold futures contracts in London. Even though the size of the scandal was similar to that of Bernie Madoff’s (nearly $60 billion) it was only minimally reported around the globe. The scope of that investment scheme would indicate a demand by Chinese investors of around 37 million ounces of gold, which is more than half of all global mining production.
In addition to the insatiable demand for gold by the Chinese government and its citizens, there is also a constant demand coming from the Middle East as well as from central banks in Russia and elsewhere. As a result of this demand, physical supplies are dwindling. There are constant reports of investors selling off other investments in precious metals (derivatives contracts, etc.) and purchasing physical gold to protect themselves from the possibility of shortages in actual physical supplies. Additionally, there has been an incredible amount of interference in the pricing of gold in the Commodities Exchange (COMEX) market which many believe has kept gold prices artificially low. When the inevitable correction in the market takes place, there could be a rally on gold related stocks which will send prices soaring.
It’s all about supply and demand.
Bio: Jacob Harrison is a precious metals investment specialist from Australian Bullion Company, Australia’s oldest privately-run precious metals wholesaler and retailer.