As of Wednesday, the WGC sponsored E.T.F.’ were up another 6.22 tonnes and to date up another 4.51 tonnes, despite the consolidation and slight fall in the gold price. The tonnage held in all the W.G.C. sponsored gold Exchange Traded Funds and the Comex Gold Trust is now at 599.34 tonnes.

Image courtesy of World Gold Trust Services 

As the tonnage held in these funds hits 600 tonnes, with the promise of much more to come we see this investment growth as remarkable and demonstrates the growing appetite for gold in the hands of long-term Investors. Outside the gold market the warning signs of monetary trouble are being met by a realization that gold has to be an important part of portfolios, going forward. 

We do expect the demand for these shares to continue to grow substantially until they equal even the larger Central Bank holdings of gold long-term. As the volume of gold held in this form, larger and larger players will be attracted to the fund in line with the increasing liquidity. At some point in time the sight of long-term individual holdings climbing above some of the leading Central Bank holdings has to send a very strong message to the world in general and in particular to the Central Banks, that the leaders in investment see gold holdings as a preferred investment. 

Having said that good sense and sound investment management seemed to be absent from Central Bank policies at this point in time when it comes to gold. This is because monetary authorities can’t control gold, but paper currencies are firmly under the hands of their printers the monetary authorities.

We expect 2007 to be the year of investment gold.

Chinese gold demand on the rise at last. 

To date the massive expected Chinese demand has been nothing more than a dream. With only a select few of the richer Chinese individuals [still under the vice like grip of the Chinese authorities] have made the gold market in China. Prices in Shanghai are in line with international prices, but move beyond that and you find more middlemen and greater premiums on the price of gold. Despite much talk to the contrary the Chinese gold market simply does not have an effective distribution system nor is gold within the reach of the poorer classes of China.

Now at last this is beginning to change, as smaller Chinese investors will soon be able to individually invest in gold bullion. This is because the previous qualifying level of gold investment was set at a minimum of Yuan 160,000 [U.S.$20,447.28], a level that virtually barred most potential Investors. Now this is to change with a new threshold being set at Yuan 16,000. Gold investors can buy gold contracts, gold bullion and gold jewelry. 

Whilst this may have opened the door to smaller Investors its benefits are still limited geographically as so far, only the Shanghai branch of the Industrial and Commercial Bank of China can offer such investment programs in gold bullion. 

Once such banks extend these services countrywide, we can then expect gold demand from China to increase substantially. As the government moves slowly so as to monitor the evolution of capitalism in China we would not expect to see countrywide distribution at international prices in the near future.

China will consume a record 350 tonnes of gold this year, up 17% from 2005, against 240 tonnes of local production. China is the world’s third-largest gold consumer, 80% of which is used for jewelry.

© 2006 Julian D. W. Phillips
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