We’ve indicated in previous articles that 2013 has been a record year for gold demand in China. Chinese investors and consumers have been purchasing as much gold as possible for most of this year. However, will this trend continue into 2014?
According to some reports, the trend is not likely in the short-term. And for the rest of us, this is a good thing, because more physical gold will be available for the rest of the world to purchase as a result.
According to gold analysts Joni Teves and Edel Tully, who visited China in the Fall of 2013 to gauge the pulse of the market, most experts are not counting on the same record breaking demand levels seen in 2013 as we head into 2014. Physical gold demand will still be strong, and will provide a cushion for the Chinese investment communities, but demand will likely slip a bit next year.
One reason is because of the Chinese New Year. Gold purchasing and giving is a tradition for this holiday, and the physical gold market benefits greatly each year. The holiday falls in late January instead of the usual middle of February in 2014, leading many gold importers to frontload their annual supply in 2013. Said another way, many people have already purchased their gold for the holiday, and those numbers actualized in 2013, rather than 2014. Thus, demand will be down at the beginning of the year from its normal levels due to when the holiday falls.
Another reason is that physical gold buyers are starting to acclimate to the low prices seen throughout much of this year. When the price of gold began to fall in the spring of 2013, many buyers got excited (in China and elsewhere) about the low prices, and demand rose. Now that the physical gold market is used to the prices, many are holding off in hopes of even lower prices.
India and China combine for about half of the world’s physical gold demand. Demand in India struggled slightly this year on the heels of increased gold import taxes, and with the Chinese demand expected to drop slightly, more physical gold will be readily available for other consumers to purchase. Regardless of the trends in Asia, the facts remain the same: gold’s price per ounce is low, and physical gold has proven over generations to be a consistently profitable investment, when purchased with a long term strategy. With this in mind, the physical gold market is definitely a buyer’s market.