Wanted to buy China's growth story but didn't know how...?
The WORLD GOLD COUNCIL'S excellent new 74-page report on Chinese gold
demand - Gold in the Year of the Tiger - contains many graphics, tables
and charts.
Time-pressed investors should focus on just two...
"Gold has a low-to-negative correlation with mainstream financial assets," reports
Eily Ong, author of the WGC's
report.
But note how the chart splits in two. And note where mainland China's domestic
stock markets sit.
Over the last 5 years - and correlated against the Shenzhen and Shanghai stock
markets - gold has in fact been more tightly linked with the "China story" than
with either crude oil or the GSCI commodities index.
Put another way, if you've wanted to buy China, buying gold would have got
you a good way there, and with lower volatility than other proxies such as
Hong Kong's Hang Seng index, too.
The second notable chart shows pretty much the only thing to have risen faster
than the gold price in
Yuan since the start of 2005 - the money supply.
Over the last year, China's GDP rose by perhaps 12%. Yuan gold
prices have added 15%. Helping to fuel them, China's M2 money supply
rose well excess of them both, swelling by 26%.
"Today, China's gold market is enjoying the benefits of liberalization and
deregulation," writes Ong. But more than lower dealing costs and reduced import
tariffs, gold is benefiting from rapid growth in the volume of cash and bank
deposits.
Yes, the People's Bank of China has repeatedly warned that it will tighten
monetary policy to curb inflation and stem banking lending. But the Yuan's
Dollar peg effectively imports US monetary policy, imposing sub-zero real interest
rates on Chinese as well as US households.
So both US savers, and their wealth-hoarding counterparts across the Pacific,
are thus likely to seek inflation-beating returns outside "risk-free" cash
now that "risk-free" means a guaranteed loss. Rare, tightly supplied gold looks
a clear choice in China to date.
Formerly City correspondent for The Daily Reckoning in London and head of
editorial at the UK's leading financial advisory for private investors, Adrian
Ash is the head of research at BullionVault,
where you can buy gold today vaulted
in Zurich on $3 spreads and 0.8% dealing fees.
About BullionVault
BullionVault is the secure, low-cost
gold and silver exchange for private investors. It enables you to buy and sell
professional-grade bullion at live prices online, storing your physical property
in market-accredited, non-bank vaults in London, New York and Zurich.
By February 2011, less than six years after launch, more than 21,000 people
from 97 countries used BullionVault,
owning well over 21 tonnes of physical gold (US$940m) and 140 tonnes of physical
silver (US$129m) as their outright property. There is no minimum investment
and users can deal as little as one gram at a time. Each user's unique holding
is proven, each day, by the public reconciliation of client property with formal
bullion-market bar lists.
BullionVault is a full member of
professional trade body the London Bullion Market Association (LBMA). Its innovative
online platform was recognized in 2009 by the UK's prestigious Queen's Awards
for Enterprise. In June 2010, the gold industry's key market-development body
the World Gold Council (www.gold.org) joined
with the internet and technology fund Augmentum Capital, which is backed by
the London listed Rothschild Investment Trust (RIT Capital Partners), in making
an $18.8 million (£12.5m) investment in the business.
Please Note: This article is to inform your thinking, not lead it.
Only you can decide the best place for your money, and any decision you make
will put your money at risk. Information or data included here may have already
been overtaken by events - and must be verified elsewhere - should you choose
to act on it.
WGC's
report.
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