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Wealth Cycles
Feb 8, 2011

Asian investors are demanding more and more precious metals, and fund managers are gladly obliging by providing them with new exchange-traded securities—like ETFs—in order to quench Asia’s thirst for precious metals. ETF Securities, a European-based ETF provider known for its physically-backed funds, is launching the Physical Asian Gold Shares Trust, which will be the first ETF to offer investors an option with storage based in Singapore.

While WealthCycles.com has cast a suspicious eye towards ETFs in general, the simple fact that these new products are appearing is a sign of the times. In China, gold has been a traditional sign of wealth and store of value for centuries—but investors could not own gold legally just a few short years ago. Today, the Chinese government actually encourages individuals to invest in gold and silver.

India has traditionally been the largest gold consumer because of Diwali, a Hindu festival in which gifts of gold are as traditional as birthday cakes and Christmas gifts in the West, and the traditional wedding season, when gold is a gift and dowry. But China is expected to pass India’s gold consumption in short order, as millions of Chinese become precious metals investors.

In China, inflation is currently running more than three times the level of the United States—and consumers are well aware of the ravaging effects of inflation. During Chinese New Year, which just passed (February 3), many Chinese citizens took to giving gifts of gold instead of the old tradition of a red envelope filled with depreciating cash and coin. While mainland China doesn’t go back to work until Wednesday, Chinese demand for gold will continue its relentless march.

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The People’s Bank of China has even begun to state its need to diversify its $2.85 trillion in dollar-denominated assets, of which less than 2% is gold.

  • A d v e r t i s e m e n t

China consumes 527 tons of gold per year, nearly half of which is imported. During the first 10 months of 2010, China imported 209 tons of gold—at that clip it was expected to import over 250 tons last year.

When you combine China’s demand with the rest of Asia and the fact that Asian nations are growing far faster than the West and developed countries, it is widely expected that Asia will consume half or more of the world’s mine supply in the coming years—no small feat.

This article was posted: Tuesday, February 8, 2011 at 5:23 am

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