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Gold Demand in Asia and Russia Signals Now Is Time to Buy

16 Oct
Asian Economic Slowdown

Gold Demand in Asia and Russia Signals Now Is Time to Buy

Gold Market Discussion

Economic Slowdown in Asia Signals More Gold Buying

Economic slowdown in AsiaGold demand in the Asian markets is picking up after a slowdown last week when Chinese markets closed for a week of holidays. Markets are indicating that now may be the perfect time to buy gold. Demand for gold in Asia is on the rise, which will contribute to driving the price higher.

Asian – and particularly Chinese – demand for gold is on the rise because of general global and national economic slow down. The Chinese economy has been showing worrying signs of lagging for some time. Exports fell more steeply in September than expected.

Lack of exports from China means there is a lack of demand for products around the world. China’s slowing economy is a symptom of global uncertainty. Sales are down with consumers not buying as many things as they used to.

Russia has also been buying up significant quantities of gold. Central banks have boosted their holdings in gold by over 10% since the financial crisis, and Russia and China lead the pack in increasing their gold reserves.

What this means for investors: Gold price’s pull back is a prime opportunity to buy. Gold performs best as a long term investment. Even Bank of America is projecting a recession to come. Their data and analysis projects it to hit next year.

U.S. Jobs and Labor Force Participation – What It Says about the Economy

US Jobs and Labor Force The unemployment rate is reportedly at 5%, but realistically it is probably in fact higher. The unemployment rate rose in September with fewer than expected jobs added to the work force. The labor force participation rate is also falling. This is partly due to baby boomers retiring, but also due to workers feeling discouraged and not actively seeking work.

Many of the jobs added are also part time employment, and many of those workers would prefer full time jobs. There has also been an increase in temp positions, which skews the employment figures a little as well.

What this means for investors: The state of the labor force can tell a lot about a country’s economy and outlook. Even with baby boomers retiring, the opportunity for younger workers to fill jobs that they once held is simply not there. One analyst blamed demographics in part for the reason that the recovery from the Great Recession is not happening as hoped. In addition, a paper by a San Fransisco economist stated that we may find the Fed’s dovish monetary policy will be contractionary rather than stimulative in the long run. Quantitate easing has been a feature of central banks around the globe, so this effect will be felt worldwide. Shrinking economies will mean even less employment and lower wages. In this economic climate, gold and silver safe haven demand will increase.

The Fed Continues to Weigh Rate Hike

Fed Rate Hike Coming?Fed Chair Janet Yellen gave another speech lacking in clarity or direction this week about a possible interest rate hike. On Thursday the minutes from the last meeting were also released, which took a September rate hike off the table. Three member had voted for an immediate hike in September, but it was voted down. Initially the minutes release was positive for gold prices.

Yellen’s speech helped to bolster the U.S. dollar while bonds fell. She gave no absolute direction to when we can expect a hike, but most analysts are anticipating December. Central banks around the world have been pursuing negative interest rates for so long, that some worry the Fed is approaching a point where they will miss the window of opportunity for a hike to do any good.

What this means for investors: A rate hike too soon will be positive for gold, but it will create shock waves through the economy. The last hike was December of last year, and the economy was not able to handle it. The Fed is playing with smoke and mirrors with its current monetary policy with the dollar experiencing strength at the moment relative to other currencies, but lack of strong economic growth and employment data contradicts it.

The pound sterling’s weakness from last week continues to be at play in strengthening the dollar as well, which is weighing on gold prices.

A Short History of the London Gold Market

London Gold MarketLondon is the most influential of the gold trading markets. Other important trading centers are in New York, Hong Kong, Zurich, Shanghai, and Sydney, but London exerts the most pull. Gold prices changes constantly but twice a day, the price is fixed in London. These price fixes are determined by supply and demand as well as speculation around monetary policy, short selling, jewelry and industrial demand, safe have demand, war, and other geopolitical events.

The Shanghai price fix that was introduced earlier this year is now exerting a great deal of influence as well. China wants to have more control over gold prices, as it is the largest gold mining and buying country in the world.

An article from Bloomberg laid out a timeline of the key events in the London gold market stretching back to the 17th century. It shows the longevity of gold as a preserver of wealth.

What this means for investors: Governments and central banks still place significant value on gold today. Although it is not exchanged as every day currency anymore, it is real money, retains value, and has for hundreds of years.

 

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Here are some articles from the web discussing the topics in this week’s post:

Economic Slowdown in Asia Signals More Gold Buying

Read Here

U.S. Jobs and Labor Force Participation – What It Says about the Economy

Read Here

The Fed Continues to Weigh Rate Hike

Read Here

Short History of the London Gold Market

Read Here


As always, I encourage you to speak with your broker at RME for more market updates. Expert brokers are available Monday-Friday from 9 AM- 5 PM or by special appointment after hours. Call today at  602-955-6500 or toll-free at 877-354-4040.

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