China Gold Buying Surges on Evergrande Crisis

How a housing crisis is joining seasonal demand to give gold an Asian market boost

Bullion.Directory precious metals analysis 27 September, 2021
By Peter Reagan
Financial Market Strategist at Birch Gold Group

In the briefest of terms, the real estate giant (“giant” in this case isn’t just figurative as Evergrande is worth about 2% of China’s GDP) is $310 billion in debt, and has already missed one bond payment. A total default seems inevitable.

With what looks to be significant economic turmoil, Chinese consumers are preparing for the worst. Premiums on physical gold are on the rise quickly, up from $7-$9 an ounce two weeks ago to as much as $12 last week. Safe havens for capital preservation seem to be on the mind of every Chinese investor right now, and some believe that the already-massive imports of gold to China could climb even higher this month.

This is happening as festival season approaches in India, as roughly a third of all Indian consumer gold sales happen in Q4. While the country hasn’t yet seen a premium increase, there are reports that retailers are preparing for a surge in demand in the coming quarter.

Although China and India are two of the world’s top gold consumers and play a huge part in supporting gold prices, gold reached its all-time high last year despite exceptionally low sales in both nations.

Therefore, it could be quite interesting to see what a rise in demand from two of gold’s biggest marketplaces will do for what is already an outperforming market.
 

The likeliest, but perhaps less expected, path to triple-digit silver

By now, most silver investors that pay attention to the market have heard of Wall Street Silver, a grassroots movement of physical investors in the metal who believe that silver’s price should be in the triple digit range as opposed to today’s just-over-$20.

Yet their reasoning is that banks have long been suppressing the metal’s price, primarily through the paper silver market.

Keith Neumeyer, CEO of First Majestic Silver, has also made forecasts for silver prices to reach triple digits. Neumeyer, however, is looking to the automotive industry as he upgrades his previous forecast to a higher triple-digit range.

Neumeyer spoke to Kitco from the Denver Gold Forum about what he sees as a straightforward issue of supply not meeting demand.

Here’s how Neumeyer breaks it down: Right now, some 800 million ounces of silver are produced annually, of which 100 million is used for electric vehicles and another 100 million to manufacture solar panels. With some governments already preparing to ban sales of gasoline vehicles, Neumeyer is beginning to wonder where the silver for all those future electric vehicles will come from.

He noted the automotive industry currently makes 19 million vehicles a year, with 5 million of those being electric.

With 100 million ounces of silver needed to make every 5 million EVs, it’s pretty clear how a sudden change in the automotive industry could upset silver’s strained supply side. Governments want to replace roughly a billion gasoline vehicles within the next two decades, and even a small effort towards this could translate to massive silver shortages with current supply figures.

Considering that only 28% of silver comes from mines where silver is the main source of revenue, silver supplies are less responsive to demand than gold’s prices. That means, it takes greater rises in silver’s price to generate additional mining efforts.

Neumeyer also noted that quantitative easing and U.S. dollar debasement are expected to push gold up and provide yet another source of gains for silver. Even leaving that investment interest aside, Neumeyer sees absolutely tremendous gains for silver based on industrial demand alone.

This article was originally published here

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