Gold Prices Could Soar to New Highs

The Chinese are known to drive a hard bargain.

But when it comes to buying gold in China, demand trumps every other concern.

Yesterday, I explained that gold is a crucial element in Chinese weddings. And that’s not the only firsthand experience I’ve had with China and gold.

What I learned along the way is that when the Chinese want gold, price doesn’t matter.

And that goes a long way to explaining why the metal can rise much higher from here.

Let me explain…

If the Chinese want gold, they’ll pay any price for it. This became especially clear to me in 2012, during gold’s last major bull market.

I was in Hong Kong which, at that time, had become a gold-shopping capital for Chinese tourists. The city’s tax-free status meant you could buy gold jewelry for just a couple of percentage points over the spot price, plus a small craftsmanship fee.

Gold was trading close to $1,800 an ounce. I was curious how much the jewelry shops along Nathan Road were selling it for, so I looked around.

Every single jewelry store I came across was jam-packed with mainland Chinese tourists. I tried stores like Chow Tai Fook, Lukfook – you name it. I couldn’t even get in.

The jewelry counters inside had buyers sitting all around them, with even more people standing right behind them. It was like a Macau high-stakes poker table on a Friday night… without the cigarette smoke.

This counterintuitive approach to gold leads me back to weddings in China. In China, the cost of gold doesn’t matter. Demand has grown even as prices soared. Take a look…

As of last year, even with gold prices averaging $1,392 an ounce, Chinese gold jewelry demand still hit 638 tonnes. To put that figure into context, that’s 38% higher than the demand a decade ago when gold was averaging $1,224 an ounce.

It’s also about one-third of global demand for gold jewelry. And it’s nearly five times larger than annual demand in the U.S.

In short, Chinese gold demand is huge – and hugely important to global demand for the metal.

The incredible thing is that more demand is likely on the way…

You see, mainland China has managed to successfully control the spread of the coronavirus in recent months. New cases have leveled off. And it has been months since China reported any new deaths.

Perhaps one of the biggest signs that things are returning to normal in China is a recent pool party…

It happened in Wuhan in August. And it looked like a rock concert. Thousands of people were there. Take a look at this photo from NBC News…

Like it or not, this is sending a clear signal to Chinese people that it’s time to “get back to your old life.” And that includes getting married.

As we discussed yesterday, gold is a big part of weddings in China. And the gold that wasn’t given during the tens of thousands of canceled weddings in the first half of 2020 will show up from here.

Simply put, a rebound in weddings means one thing for gold… A lot of Chinese buyers are about to come back into the market. And remember, these aren’t discerning buyers.

They buy because culture dictates it. Demand is locked in. And that means that soaring prices – and gold near $2,000 an ounce – won’t slow them down.

Massive demand means on thing for gold… already record-high gold prices can soar to new highs.

Good investing,

— Brian Tycangco

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Source: Daily Wealth