Precious Metal Update

Both gold and silver had done remarkably well in 2010, due to the huge debts of major developed countries, their galloping inflation and, consequently, falling currencies. As such, the gold price increased by 30%, whereas the silver one by a stunning 83% last year. But both precious metals are doing their best now, in China, the largest consumer in the world at present. The first two months of this year, for instance, had witnessed queues of hundreds of people waiting to buy gold jewelry every day and tens of retail investors purchasing gold daily, some even kilograms at a time. As such, jewelry stores there expect an increase of 10% in the price of gold this year, and shopping malls expect some investors to buy as much as 10 kilograms of gold each.

In the attempt to meet this surging gold demand, China not only buys gold by the ton from any foreign banks or holdings willing to sell, but also encourages its banks to sell gold to retail investors. As such, one of the largest Chinese banks sold 7 tons of physical gold only in January (by comparison with 15 during the entire 2010). Silver being equally demanded, the same bank sold 13 tons of silver in the same month (by comparison with 33 tons during the entire 2010). The bank also came with the idea of selling gold bars to retail investors, that they may resell for money through the bank depending on real-time gold rates. This physical gold investment product is expected to push up the retail investment in gold by 10%-15% only this year.

Besides selling physical metal, the same bank created some non-physical gold investment products, such as gold-price-linked term deposits. The 1 billion Yuan-worth deposits issued in 2010 were, however, sold only in a few days this January, a fact indicating again the frantic gold demand in this country.

Noticing that gold has, on average, witnessed an annual appreciation of about 17% over the last nine years, retail investors elsewhere, for instance, in the States are also diversifying their portfolios with the precious metal. The demand for physical gold is such that some providers and holders of gold bullion there have at present assets of over 1 billion dollars on behalf of their retail investor clients.

Unfortunately, the prospects of new gold discoveries are far from encouraging, the amount of gold discovered decreasing dramatically from around 90 million ounces in 1997 to around 10 million ounces in 2008 and continuing to decrease ever since. As such, the current gold rush, whether in China or elsewhere, is likely to push gold rates constantly higher.

Source by Carol Medforth