China Sends Bullish Signal for Gold Prices in 2014

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In a stellar year-to-date showing, gold prices in 2014 are up 7.6% – compared to the Dow Jones Industrial Average's 3.9% drop.

Gold set a new closing high record for 2014 on Wednesday when it added $5.30 to hit $1,295.20 an ounce.

Pushing gold to a near three-month high this week was testimony from new Federal Reserve Chair Janet Yellen. Yellen made it clear she isn't about to make any abrupt changes to the central bank's pledge of a measured tapering of bond purchases. Additionally, Yellen said interest rates will remain near zero for a good while.

But what will continue to stoke gold in 2014 is unprecedented demand from China

China's Growing Demand to Cushion Gold Prices in 2014

To Chinese investors, gold is acting like a safe-haven alternative asset and store of value in times of economic uncertainty. And this buying will provide a cushion for gold.

China's gold consumption surged 41% last year, surpassing 1,000 tons for the first time ever, according to a report Monday from the China Gold Association. According to the report, total 2013 gold consumption in China hit an extraordinary 1,176.40 tons — and that doesn't include central bank demand.

Note: The Fed's 2014 taper means volatility ahead. So we've outlined how to find profits in a volatile market – like triple-digit gains in just days – if you start with this strategy…

Spurred by the steep slide in prices – gold shed 28% last year, marking its first annual loss in 13 years – bullion demand soared 57% to 375.73 tons and jewelry demand rose 43% to 716.50 tons.

The hearty surge in demand propelled China to become the No. 1 gold consumer in the world, leapfrogging India for the top spot.

"The sharply lower prices attracted a lot of Chinese consumers looking for bargains," Chen Min, an analyst at Jinrui Future in Shenzhen, told Reuters. "Gold will continue to be an attractive investment in China in the near term as prices look steady near $1,200 an ounce."

India has historically been the primary influence for gold prices. India did help goose gold Tuesday. It released a recommendation from India's trade ministry to ease curbs on gold imports, after a 77% drop in imports last month helped narrow the country's swollen trade deficit. First levied in March 2012, and raised three times to 10%, the duty choked off gold consumption among Indian buyers – who typically purchase more gold than any other country.

But should Chinese consumers continue to view gold as store of value, the substantial size of China's market is enough to shift the historical undercurrents and fuel a significant gold rally.

Chinese consumers also continue to bank on gold as concerns mount about the state of the Asian nation's economy. Fresh reports have shined a light on escalating troubles in China's real estate and financial markets that could significantly rattle the world's second-largest economy and send ripples around the world.

And the robust figures don't include demand from the country's central bank, whose gold reserves remained steady at 33.89 million ounces, or 1,054 tons. People's Bank of China last increased its gold reserves in April 2009. But speculation is PBOC has been bulking up its yellow metal stores and is set to soon announce heftier figures.

In early morning trading Thursday, gold flirted with the key $1,300 level. At last check, the yellow metal was up $5.40, or 0.43%, at $1,298.20.

Money Morning Global Resources Specialist Peter Krauth told us last month how gold buying out of Asia would drive the yellow metal's price higher in 2014. And that's only part of the story. Get a full look – including a gold investment to make now – here.

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  1. Doc Smithmeier | February 13, 2014

    The Fed. is manipulating the entire market, playing with banks one day and extrotion the next. The Gold and Silver market is a scam, Chase Bank caught red handed and the fed. unable to pay back 650 tonnes owed to Germany the next. France is now Obama's best friend because they like us can't find the German gold they had of 550 tonnes. China is now missing 500 tonnes in a game of hide and seek as Fort Knox's gold is just dust in a vault.
    Funny, the Wall Street gang knows the truth, there is no Gold but fears they will be the next Banker to commit harry kerry by shooting themselves 8 times in the head with a nail gun? 400 banks retired in the last 60 days and 21 committed harry kerry, what will the total reach next week?

  2. Michael | February 14, 2014

    Hi,

    "Total 2013 gold consumption in China hit an extraordinary 1,176.40 tons."

    Where on earth did you get this figure from? The actual gold demand in China as measured by gold bullion removed from the Shanghai Gold Exchange vaults was actually 2197 tons. This gold cannot be returned to the Exchange unless it is re-refined. This figure does not include Chinese Central Bank gold purchases. You also have to include net Hong Kong gold purchases which were about 400 tons. When you add these two figures you end up with total Chinese gold demand (ex-Chinese Central Bank purchases) of around 2600 tons, slightly more than I would say than 1176.40 tons.

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