China Still Loves Gold (And Silver)

As momentum buyers continue to look at other asset classes, and as the precious metals continue to wallow at three year lows, bullish news may appear hard to find. And yet, this morning, more reminders come that other entities outside the US and parts of Europe are stepping up and buying the price weakness. At the margins, this kind of activity counts, even as the broader tone of the market here in the US leaves something to be desired.

One article today, appearing on bloomberg.com showed a new bullion vault in China that could possibly store nearly 100 billion dollars of real, physical gold. In a nation with strong economic growth– as well as inflation higher than that experienced in the West at the moment– China’s gold buying spree seems to continue unabated.

Moving on to the Middle East, last week saw reports that Dubai’s gold retailers will likely see strong increases in sales, due to government restrictions on gold in India. Remember that the Indian government has tried to curtail gold imports into the country in an effort to defend the rupee. But as I’ve noted before, government efforts to single-out gold have a real possibility of backfiring. In India, gold is not only an investment, it is a religion. Eventually, the government will have to relent and allow gold imports to increase.

The likelihood that the Indian government is nearing the end of its anti-gold campaign coupled with the cessation of selling here at home of once-popular Gold ETFs like the GLD, means that the bottom seen in gold and silver last June will probably hold. When everyone knows the bearish stories, but few focus on the positive ones, you have to take a contrarian opinion. And when so many people who never owned gold or silver are now calling the bull market over, it pays to remember that conventional opinion is more often than not the wrong opinion to have over time.