Expect Gold to Surge, Will Still Rule Them All

Precious metal gold, despite roller coaster highs and lows, will still rule over all precious metals.

Although it posted its biggest one-day drop in two weeks on Friday evening after S&P downgraded the credit ratings of France and Austria, sending the global market to go berserk, this same uncertainty over the world's fiscal health will create a parallel pandemonium to acquire more of the gold metal, ultimately fuelling prices to go up in the next few months.

As of 10:14 p.m. EST, spot gold traded steady at $1,640.31 an ounce, dangerously teetering along the 200-day moving average of just below $1,638. Financial planners had recommended investors hold 5 per cent to 10 per cent of their portfolio in gold as part of asset allocation.

News of gold hording by the world's second-largest economy, China, is likewise seen as a perfect ingredient to push the prices of the yellow metal upward. According to trade data, in the month of November, China imported 102.8 metric tonnes, worth to be some $5.4 billion.

It is not surprising for the Chinese to buy more than average gold towards the latter part of the year, as they give away the precious metal as gifts to business partners, family and friends during the traditional Lunar New Year. This gift-giving mentality, suffice to say, is one reason to accumulate the precious metal.

And when gold prices tumbled in the last quarter of 2011, it is believed China, notably its central bank, seized the opportunity to purchase more of the yellow metal to ensure China's fiscal health. Whether bought as by a nation or not, Chinese gold accumulation bears a very important long-term significance.

"Little if any of this gold will come back to the world market, certainly not for many years. Not only are gold exports from China illegal, but also Chi-nese savers and investors buy gold mostly with no intention of selling. These are long-term, quasi-permanent holdings," analyst Jeffrey Nichols wrote in the international mining publication Mineweb said.

China's physical appetite demand for the safe-haven yellow metal will remain strong for another week or more with the onset of the Lunar New Year beginning January 23, Nichols added.

"(The appetite) could drop off, though perhaps only for a few weeks as the underlying factors supporting Chinese demand remain in place."

Moreover, more central banks will join in the fray to acquire more gold this 2012.

"Central bank buying was an important factor last year, effectively removing several hundred tons of gold from the market. I expect central bank demand not only to continue but possibly expand further in 2012 with China and Russia leading the pack - and a growing number of countries underweighted in gold relative to U.S.

dollar-denominated reserves joining in this official-sector gold rush," Nichols said.

On Friday, the U.S. Mint reported it sold 85,500 ounces of American Eagle gold coins in the first two weeks of January 2012. Full-month sales would reach 213,750 ounces at that pace, the most since December 2009, Reuters reported. According to the World Gold Council, China has already bumped off India from the top spot during the third quarter of 2011 as the world's top gold buyer. The People's Bank of China's last known gold reserves amount to 1,054 tonnes more than two years ago.