Bullion-hungry Asian consumers are
as the fundamental support for gold prices. But India's demand
for gold has weakened as the combination of high inflation and a
weakening rupee sap the country's collective buying power. China
seems to be stepping in to fill the gap.
China's gold appetite rose 20% in 2011. But even though the
country imported $46 billion in gold -- roughly 770 metric tons
of bullion -- it still trailed India, which absorbed 933 metric
tons or $56 billion in precious metal.
Overall, worldwide gold demand rose 0.4% to 40,671 metric tons
worth $205.5 billion.
The World Gold Council said it's "likely that China will
emerge" as the world's largest consumer on 2012.
The world's second-largest economy has a population blessed
with a rising income, providing a direct link to the demand for
gold jewelry and other luxury goods
. China became the world's largest gold jewelry consumer in the
second half of 2011.
Helping to fuel the demand for gold bars and other gold
investments in China is the lack of other domestic investment
Couple China's appetites for both gold jewelry and investments
with gold's popular status as a hedge against both inflation and
"the sky is falling" economic dread, and it is no surprise gold
hit a record high of $1,891.90 in August.
If that wasn't enough demand for gold,
enter the central banks
of developing economies as they seek to diversify their growing
piles of foreign currency reserves. Central banks of these
developing economies bought 439.7 metric tons of gold in 2011, up
77 metric tons in 2010 -- and the highest amount since 1964.
If traders read only the World Gold Council annual report they
couldn't help but be bullish. So what is the big picture driving
1. The sky is falling, at least in the euro zone. Europe is
still in a crisis as Greece, the European Union and policy
makers continue to delay the Greek bailout up to the edge of the
March 20 deadline. Until we get resolution here, the outlook for
European banks remains clouded -- and Portugal and Italy are not
looking great either. Meanwhile, the contagion spreads.
2. Global inflation remains strong. U.S. policy leaders
continue to take food and energy out of the inflation numbers to
only mask the increasing amount of American earnings going toward
necessities. Go to your grocery store and marvel at the products
that have been reduced in size with either price staying flat or
in many cases increasing.
I maintain the best bet against inflation and a great way to
hedge portfolios from disaster risk is through physical gold --
either gold coins and bars, or via the SPDR Gold Shares Trust (
Although the miners (
) seem cheaper at times, many factors can move against
individual companies and would require a more hands-on