Lear Capital: Asian Gold Contagion Spreads

2010_01_05_17_53_260001Like a tsunami heading West to East, more gold is headed to Asia.  So many reports on China’s secret gold purchases are surfacing that it’s just not a secret anymore.  Don’t be surprised, one day, if you hear China’s gold reserves have tripled.  It has been suggested that if news gets out of China’s massive gold buying, worldwide gold demand could spread like a contagion and send gold prices to $2500 an ounce.  We see evidence now, the contagion has begun.  Japan has joined the effort to accumulate gold in a big way.

In case you haven’t heard, Japan is printing money like it’s free – dah!  Isn’t all printed money free?  Last year, in an attempt to charge their deflating economy, the Bank of Japan embarked on a money printing spree that could see the equivalent of $1.4 trillion printed by the end of 2014.  The target is 2% inflation, something not seen in Japan for 22 years.

This effort has some deeply concerned.  Pension funds, who revel in deflation are concerned that inflation will rot away the purchasing power of money saved.  In a deflating economy, cash is king as purchasing power increases.  Consider for yourself, the value of your own retirement savings if 2% deflation persisted over the next 10 years.  Then compare that to just 2% inflation and you see how your savings and retirement could lose 40% of its purchasing power within a decade.

Fearing the inevitable – Inflation! – pension funds in Japan are implementing strategies to combat eroding purchasing power.  THEY ARE BUYING GOLD!  According to Peter Krauth, a highly regarded metals market analyst, “Japan’s government and private pension funds are second in size only to the U.S.  Together, there’s the equivalent of over $3.36 trillion sitting in these funds waiting to be distributed to Japan’s aging population.”  Hundreds of pension funds have begun to make their move.

Funds making the move are re-allocating 1.5% to 3% of their holding into physical gold.  According to Krauth, here’s some facts that “will blow your mind.”  If just 1% of this money moves into gold over the next 2 years, we could see the gold price run to $1552 an ounce.  If we get a 3% move we could see the gold price run to $2258 an ounce.

If Japan and China are both on a gold buying spree, where is all the gold coming from?  As we examine inventories of COMEX Gold, we see that since January 1, 2013, some 4 million ounces of gold have left the exchange.  That’s the equivalent of 126 tonnes or $5.2 billion dollars.  That may answer part of the equation, but is still a drop in the bucket compared to the demand that could rip through inventories of every available ounce of gold for sale.

With 4 million ounces of gold gone from the COMEX, that leaves only about 7 million ounces, less than $10 billion dollars worth.  If my math is correct, 1% of $3.36 trillion is $33.6 billion.  According to Krauth, that’s the minimum potential gold demand from just Japan’s nervous pension fund managers.  Bump that demand to 3% or $100 billion and throw in another hundred or two billion dollars of demand from China and you can see why the Asian Gold Contagion could light up the gold ticker in the months ahead.

As always, the opinions expressed herein are mine but the facts are all borrowed from respected analysts and writers.  If I was you I would stay tuned as the Gold Contagion Spreads.  And the best way to do that would be to follow me @DaveTheGoldDr.

One thought on “Lear Capital: Asian Gold Contagion Spreads

  1. A lot of ifs. We’ve been hearing this for a long time now. I know a few senior citizens that are teetering on the brink with every up and down move in gold and silver. They really can’t wait for these moves to take place.

    Been hearing more radical numbers like $5,0000-10,000 oz. and heard that one for the last 5-10 years.

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