Insight into International Gold Purchases

The price of gold, like all investments, constantly fluctuates. The value of any investment is largely driven by supply and demand and the demand for gold has been steadily increasing, especially in the U.S, China and India. Seasoned investors know that it is wise to buy on dips in price when they are accumulating an investment and this is especially applicable to gold.

When you are purchasing gold it is important to fully understand the global gold market as part of your due diligence.

The Indian government recently doubled their import tariff on gold purchases, slowing but not stopping gold investing. Indians are avid gold investors who choose to hold a significant amount of their wealth in gold.  Some of this is traditional and part of their culture, some is insurance against future economic difficulties and a way to protect their wealth.

China is another country where the citizens are savers and are also avid investors in gold. A closer look at the motivation for Chinese gold investing reveals some current economic pressures that explain an even more robust recent volume of gold purchases. A Forbes report by Gordon G. Chang provides an in-depth look at the gold purchase volumes, the Chinese economy, current economic pressures and motivation for the Chinese individual’s gold purchases, click to read more.

To summarize, there is a growing pessimism inside China about the stability of their economy. The Chinese people are concerned about the Chinese growth story, the inability of the Chinese government to sustain the rapid growth of the Chinese economy much less to keep it stable and economic difficulties that may be on the horizon. Purchasing gold is a way for Chinese individuals, who do not have the ability to export cash, to find a refuge and hedge against the potential devaluation of property, losses in their stock market investments and devaluation of their currency.

Chinese gold purchases appear to be a flight of capital to purchase insurance against economic difficulties. The effect is that gold purchases export Chinese cash and the problem with record amounts of gold purchases is that it removes liquidity from the Chinese economy just when investments of cash in the Chinese economy are most needed. The Chinese government, in late December 2011 shut all Chinese gold exchanges, with the exception of two gold exchanges in Shanghai, in an effort to slow the rapid export of Chinese cash from gold purchases.

The Chinese people use gold in the same way as individuals worldwide; they purchase gold as hard currency to insure their wealth against downtrends in their economy that can devalue other holdings such as real estate, stocks and currency.

The benefit from understanding the global gold market provides valuable insight into the price fluctuations caused when governments try to slow gold purchases and the subsequent resumption of demand for gold.  With all investments, each investor needs to understand their own reasons for buying gold and it is also wise to perform due diligence to understand your investments, the potential for gains and the risks involved. Getting a view of the big picture is an essential part of gold investing.

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