Back in February, Switzerland exported gold to mainland China for the first time since September. Shipments also flowed into India and Thailand, which hit multi-year highs. This resurgence in demand seems to suggest that Asian gold demand is on the rise. Perhaps these markets are on the mend from the COVID-19 economic shock. Last year, Chinese, Indian, and Thai demand halted as the pandemic spread. The demand for gold actually struggled to recover the most in China but seems to be rising once again.
Gold Demand in Asia
Back in August, the gold price set a new record for its all-time high price. However, there has been a subsequent decline in the gold price ever since. Most of the gold demand in Asia is for jewelry, and buyers were disillusioned from high prices. Now that the gold price is decreasing, it appears that the retail market for gold is recovering.
Customs data from Switzerland indicate that back in February, India received about 56.6 tonnes of gold, Thailand imported 11.2 tonnes, China accepted 2 tonnes, and Hong Kong received 1 tonne. What is so significant about this is this is the largest order sent to India since April 2019. Additionally, Thailand did not receive this much since August 2018. Hong Kong also has not placed such a massive order since September. What is most important about this is India and China are among the top two gold importers, and Thailand is a regional trade hub.
This indicates that gold demand is returning, lining up with various celebrations that require gold as part of the festivities.
Here is the official data:
SWISS TRADE DATA (KG)
To China To Hong Kong To India To the U.S. To Britain
Feb-21 2,000 1,045 56,472 12,031 77
Jan-21 0 28 38,696 16,666 5,216
Feb-20 2,000 10 9,591 361 9,256
* Source: Swiss customs. Data subject to revision by source.
Gold Price Today
As you can see from the past month, gold demand has had its ups and downs but is mostly on the rise. It peaked at the end of February and fell after upbeat news regarding unemployment, reopening economies, and a stronger US dollar.
However, Peter Schiff and others are sounding the alarm that inflation is on the horizon. In his eyes, the Federal Reserve is in a trap. He said to Kitco that the Treasury can either raise interest rates to bankrupt the Treasury or bankrupt the American people as inflation becomes unsustainable.
“How does [the Fed] fight that inflation without bankrupting the U.S. government? The answer is it can’t. My thinking is, if it can’t fight inflation without bankrupting the U.S. government, it won’t fight the inflation, which means it bankrupts the public because it destroys the value of the dollar.”
This fear around inflation may rally investors to return to alternative investments like gold and cryptocurrency. Although gold demand has not picked up since August, analysts suggest that it is hitting a resistance level at $1,750. Jesse Felder of The Felder Report investment newsletter, states that the price of gold over the last seven months is a healthy correction. He also says the biggest threat to gold markets and gold demand is rising bond yields. Currently, these yields are at their highest level in over a year. So, he suggests investors pay close attention to real yields, including rising inflation. The gold demand, and price, will increase as a direct result of rising inflation.
An additional bullish factor for gold is rising government debt.
“Currently, the CBO estimates that the 2021 deficit will be $2.3 trillion, slightly less than last year’s total. However, this does not include the $1.9 trillion stimulus package recently passed by congress. Nor does it include the possibility of a new $3 trillion infrastructure package which is currently being planned by the administration.”
He finishes by saying that gold’s abilities as an inflation hedge remain untarnished as he rallies in support of gold. Deficits are nowhere near peaking, and the gold market is yet to price in the new spending.
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