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Why China Is a Key Reason to Be Investing in Gold
Recently, a major event was held that sent a signal to anyone interested in investing in gold.
For the first time ever, the London Bullion Metal Association (LBMA) held its annual meeting in Hong Kong. It is a trade group that represents the wholesale market for gold and silver and it's telling that it decided to have its meeting in Hong Kong.
However, the site choice should not come as a surprise to anyone following the gold market. China has become more and more important to the gold market. The Asian giant's imports of the shiny yellow metal have become a key factor in gold's positive price performance over the last few years.
Investing in Gold: China's RoleBullion demand from China has soared in the past several years.
In 2007, China accounted for just 10% of global gold demand. By 2011, China was responsible for 21% of global gold demand. This trend can easily be seen in figures from the World Gold Council (WGC). It said gold demand in China has risen from about 250 tons in 2006 to almost 800 tons presently.
What the WGC numbers don't tell you about though is how China's central bank, the People's Bank of China, is buying gold. Gold imports into China via Hong Kong (the route the central bank uses) has continued to rise rapidly despite a dip recently in gold buying by Chinese consumers.
Hong Kong has seen on average about 65 tons in gross imports of gold per month. Year-to-date China has imported an astounding 582 tons of gold, more than the official holdings of another country well known for loving gold, India.
It is not shocking that the Chinese central bank is trying to get its hands on large amounts of the precious metal.
As David Gornall, chairman of the LBMA, told the conference "The country [China] has only 2 percent of its reserves in the form of gold." He added "that allocation can only go in one direction."
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How the Fiscal Cliff Will Affect Gold Prices Now
On news of a second term for U.S. President Barack Obama, investors didn't show any excitement as the market fell 2.3% the day after Election 2012.
The fiscal cliff countdown has come to the forefront of concerns this week, helping push the Dow Jones Industrial Average down more than 2% since last Friday.
But for gold prices, this could be a good thing.
Here's how the fiscal cliff will affect gold prices as Washington battles over how to solve the looming threat to the U.S. economy.
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What an Obama Win Means for Gold Prices in 2013
By The 2016 Election Gold Could Be $3700 an Ounce
It's now two years and two billion dollars later...
And in many ways, we're right back where we started with the same President, and a house divided.
For investors, all the uncertainty this situation brings to the fiscal cliff and its impending tax increases and spending cuts are likely to fuel plenty of volatility for the next several months.
Yesterday's almost 300 point drop on the Dow and a 7% pop in the VIX are good examples of this.
We can also expect Ben Bernanke to be in place until at least early 2014. The only change I expect from the Fed now is more frequent and still larger easing campaigns, as well as potentially extending low rates, again, beyond mid-2015. Even if Bernanke is replaced, I expect only more of the same seriously misguided policies.
In fact, just yesterday San Francisco Fed President John Williams hinted that the most recent QE3 bond buying program could well exceed $600 billion.
So what does all of this mean to investors in hard assets--particularly those with holdings in gold and silver?
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What to Expect From Gold Prices If Obama Wins Election 2012
Now that Nov. 6 is here, it is tempting to look at what might happen to gold prices if the incumbent - U.S. President Barack Obama - wins Election 2012.
Leading into Election Day, traders are the most bullish they have been in 10 weeks. Eighteen of 27 gold analysts contacted by Bloomberg News were expecting higher gold prices in the short-term, while only five of the analysts were bearish.
Holdings in gold exchange-traded funds (ETFs) reached a record 2,588.4 metric tons on Nov. 1, which was valued at $140 billion. According to Bloomberg data, holdings in gold ETFs in the past three months have enjoyed their best run since August 2011.
Of course, the rise in bullishness regarding gold is not only due to the presidential election, but also to continued loose monetary policy from the U.S. Federal Reserve. Gold did rise 70% as the Fed bought $2.3 trillion of debt during the first two rounds of quantitative easing.
So should gold investors expect anything to change if President Obama wins re-election?