Gold Forecaster
- Global Watch
 China,
Gold and The Coming Flood of Wealth
Julian D.W.
Phillips
Gold Forecaster snippet
Apr 25, 2008
I have just returned from a
10-day trip to Southern China and Hong Kong. While I was there,
I explored the Chinese attitude toward gold. If their demand
for gold equaled that of other nation's average individual holdings,
then we would see their demand well into four figures. I wanted
to know if the Chinese would really move towards gold in their
portfolios.
Growth in China
The Chinese government has set its sites on an average of 10%
growth per annum and is achieving that because it has the power
to ensure that this happens. The full, synthesized Chinese economy
is under the firm control of the government. Is this control
feared and resented? From our observations we saw a people that
liked to be regimented and in synch with the government, which
is regarded as a 'big brother' bringing wealth, prosperity and
support to a large and growing number of its population. It appeared
that the inclination of the people is to forego individuality
in favor of obedience to the government that has brought them
out of poverty over the last 25 years and more.
In the midst of an urbanization
program that is seeing 50 cities of 10 million people being built
[to be completed by 2020 - and almost certainly going to happen]
and an upliftment of the remaining rural poor of 400 million
[no doubt they will benefit from higher prices for food in the
coming months and years?], we found incredibly, almost no stress
in the city we visited [Guanshou]. The willingness to work hard,
to obey and to subject themselves to the government is a prime
reason why their growth is so rapid. It appears that the main
driving force is the financial empowerment of the people by the
government.
Can you imagine going to the
bank with a potential order for a product, a business plan and
an offer of machinery on credit from the best machinery companies
in Europe. You would be able to project that workers receive
in the order of $500 a month, lower supervisors $1500 and management
at $2500 a month. You would have no union problems, no environmental
issues, and a workforce that works hard and capably for long
hours. The potential margins you would enjoy would be higher
than any achievable in the developed world. Loans would come
from any bank in the world on that basis.
If you can undercut your competition's
prices by 50 to 75% then you will do well and have the bank panting
after you as well as foreign machinery sellers. The comment was
made that the Japanese took 20 years to get their cars right,
Korea 10 years; China should do it in the next 5 years. When
they do, you can be sure that most foreign competition will have
to offer far more than they do, to compete. Global manufacturing
is moving to Asia with China in the lead!
The State of Investment
Markets
At this young stage of the economy with business growing so fast,
savings appear directed at increasing production and wealth and
not in passing it to a fund for investment. The opportunities
for developing wealth and industry are where the new wealthy
are focused. Both the banking system and investment infrastructure
need to be developed considerably further than at present before
they will have as many mature markets as the developed world
has at its fingertips and preceding that there needs to be 'excess
wealth' available to investors over and above development needs.
The Chinese currency, the Yuan,
has not helped gold much either. The gold price in the Yuan has
had to cope with a rising Yuan, which has appreciated 18% over
the last year. As a result the gold price itself has not been
a magnet for investors.
The nearest mature set of markets
to China is to be found in Hong Kong, where we find the fifth
largest financial market in the world. A look into the hordes
of apartment blocks there showed selected light fittings with
people dressed in true well-off western style. In Guanshou the
apartments had only neon lighting and the people dressed well
but not affluently. This reflects the state of the gold market.
We know then that although
Chinese demand for gold is healthy and rapidly growing it is
barely a trickle to what it will be in the future. I do
believe that in the upper echelons of Chinese society, where
the wealthy reside, there is a great interest in gold and in
its investment value, but this group is not large or capable
of demanding so much gold that it even begins to achieve the
full potential of China's investment potential in gold.
Consequently it is not the
emerging wealthy nations, but the gold merchants who are the
targets. We talked to one of the main banks that was offering
gold and silver to the public, but saw that this came in the
form of 24-carat gold plated figurines and Olympic medals containing
both gold and silver. Obviously, this is not a serious investment
attitude toward precious metals.
Chinese demand for gold
will rise like a river in flood.
Apr 24, 2008
Julian
D.W. Phillips
email: gold-authenticmoney@iafrica.com
321gold Ltd
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