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Gold Continues Its Migration From West to East

by Peter A. Grant

May 08, AM
(from USAGOLD.com) --

Gold has retraced all of Tuesday's losses, and then some, ticking above yesterday's high at 1470.20 intraday before slipping back into the range. The yellow metal is being underpinned by a softer dollar and the latest confirmations of strong physical demand in Asia.

Chinese imports of gold through Hong Kong surged to a record 223.52 tonnes in March. That's a 130% increase over the 97.1 tonnes imported in February. Year to date through March, Chinese imports through Hong Kong total 381.59 tonnes. April demand is widely anticipated to exceed March's record total.

Of course imports are only part of the demand picture in China. The Middle Kingdom is also the world's largest producer of gold, with 370 tonnes produced in 2012. China has increased its output in each of the last six-years, but essentially all of that output stays within the PRC.

Meanwhile in India, gold imports year to date through March were 200 tonnes according to the head of the Bombay Bullion Association, as quoted in a 15-Apr Reuters article. However, the April price drop spurred a huge jump in demand that pushed imports above 100 tonnes. A Bloomberg story today projects another 100+ tonne month in May.

In light of this incredibly strong demand for physical gold in Asia so far this year, I am increasingly inclined to dismiss any concern about the 293 tonnes of outflows from GLD (YTD through 07-May) that everyone else seems to be fretting over. Demand for real gold, in the form of physical imports, for just two Asian countries was nearly 600 tonnes through March. And it's going to be much higher than that when the April totals are in.

The movement of gold from weak hands in the West to strong hands in the East is a phenomenon we've discussed in the past. When we speak of these "strong hands," this is gold that is likely to stay off the market for decades, perhaps generations. Asians tend to buy physical gold as a form of long-term savings. They generally don't sell when the price goes up, nor do they sell in a panic when the price drops. If it moves at all, it is usually gifted among family members and friends.

But lest you think that buyers in the East are the only ones buying up physical, let's not forget that there were 6.5 tonnes (292,500 ounces) of Gold Eagle bullion coins sold by the U.S. mint in April alone. The year to date total for Eagles through April was 15.6 tonnes (502,000 ounces). Add on Buffalo sales and the U.S. Mint has sold nearly 20 tonnes (634,000 ounces) of gold through April.

There will undoubtedly come a point, when Western investors are going to want that gold back, precipitated perhaps in the not too distant future by a faltering stock market or some new black swan event. Yet the new owners of the East won't be selling. In fact, they are likely to be buying more. I therefore suspect that there will be higher price to pay, and it just might be significantly higher.

To touch briefly on the supply side of equation, USAGOLD President and founder Michael J. Kosares had an excellent post on our Breaking News Page yesterday entitled The Hidden Crisis in the Gold Business. That crisis is "static mine production that has not responded positively to the rising prices over the last several years." Mike goes on to say, "When you weigh the production problems against the growing global demand, you get a sense that something has to give somewhere."

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Gold Continues Its Migration From West to East