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Why is investor demand for gold up at a time when gold prices have declined?

*MarketWatch, by Myra P. Saefong, January 21, 2011

”Gold prices have lost around $75 an ounce this year but analysts are unfazed by the drop, with many betting the slump in prices will soon be cut short as the Chinese New Year feeds an increase in global demand that’s destined to last.

‘We are entering a period of strong seasonal growth in gold demand and Chinese New Year is a big part of that,’ said Brien Lundin, editor of Gold Newsletter. ‘Physical demand has been supporting the gold prices on the downside even during the typical slack periods, and I expect that upcoming increase in demand will also support the price, but at higher levels.’ ”

” ‘It’s really simple,’ said Cary Pinkowski, chief executive officer of Astur Gold. ‘China banned gold ownership for most of the 20th century and that’s over. China has a savings rate of more than 30%  . . .  [and] has an official inflation rate of 10%.’

On Thursday, data out of China showed that consumer inflation hit 4.6% year-on-year in December and GDP expanded by a faster-than-expected 9.8% year-on-year for the fourth quarter.  The news sparked a global selloff in commodities and stocks on worries that the fast expansion would prompt policy makers to hike interest rates again.

‘The Chinese will buy more and more gold just as every other civilization has in inflationary times and with their high savings rates, they have the money to do it,’ Pinkowski said.”

”Since 2005, the January through March period has seen China’s private household gold demand average a rise of 22% from the previous nine months, according to a BullionVault analysis, based on GFMS data courtesy of the World Gold Council.”

”China is not alone.

India continues to be the world’s biggest gold buyer.

India’s import figures for 2010 were sharply higher — almost one-half above 2009s depressed level . . . ”

*This information is solely a highlight of the opinion of a third-party publication and is incomplete.  Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.

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