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LAWRIE WILLIAMS: Gold would be a great gift this festive season

Having been brought up in the Christian tradition one learns that the gifts brought to the infant Jesus were gold, frankincense and myrrh.  But of the three one suspects that gold has held its value rather better over the years.  Being Christmas frankincense and myrrh are available online at a number of spiritual outlets but one suspects that in modern times gold might well be the preferred gift – and, if things go as many believe, at this year’s price of around $1070 an ounce at the time of writing, it might truly be a gift which should appreciate, perhaps substantially, in value over time.

Yes, it might still lose a little of its value when the US Fed eventually makes up its mind to start raising interest rates – most believe this will happen this week.  But unless there is then a continuation of the interest raising program in the months ahead, which could cause insuperable problems for the global economy which is still struggling along the bottom and could come back to bite America in the backside, there is a good chance that supply/demand fundamentals could see gold breaking its three year losing streak in 2016, and power ahead beyond that as sentiment moves in its favour away from general equities.

It is not just in the Christian religion that gold plays an important role.  In almost any religion you care to name, gold has an important place and, as such, it is hard wired into the psyche of the people of many, perhaps most, nations around the world – indeed it even has a place in the hearts of those who profess agnosticism.  In the world’s two biggest consuming nations, China and India, gold plays a hugely important part in festival gift giving, but these countries tend to stand out because of their enormous populations which means that even a tiny per capita consumption adds up to a massive national total.  And with their economies still growing at a high rate in comparison with the West, the disposable wealth is rising too as more and more of their populations are dragged into what is termed the ‘middle classes’ and are encompassing the Western virtues, or perhaps vices, of overt consumer spending.

I think we in the West perhaps don’t appreciate how far China, in particular, has moved in this respect over the past few years.  According to the latest figures from the United Nations’ World Tourism Association, the Chinese are comfortably the World No. 1 in tourism expenditure ($165.2 billion in 2014) way ahead of the USA whose citizens came in in second place with expenditure at $111 billion).  Chinese tourism spending was up 27% on that in 2013 and is no doubt increasing ever further along with the rise in GDP – perhaps at a similar rate.  We have already commented on the massive one day shopping binge via Chinese website for Singles Day where buyers on one day in China spent more than Americans did over the Black Friday/Cyber Monday weekend.  The potential spending power of the Chinese consumer is absolutely massive – and continuing to rise as the economy expands. And it is still expanding, albeit at a slower rate than in the prior ten year period.

India has not nearly yet achieved the kind of GDP growth China has been experiencing, but the overall trend is upwards – and again at a high percentage in comparison with leading Western nations.  Here again the enormous population will mean that total GDP will be edging ever higher as economic growth filters downwards. India currently lies in 9th place globally according to the IMF, and while it has a much more dysfunctional political system and economy than China, which will continue to hold back its growth percentages, there are still those who believe it may even rival China’s GDP (No. 3 in the world after the EU and USA) in absolute terms within the next two to three decades.  We somehow doubt this but it will still see substantial growth and its peoples’ interest in gold remains phenomenal.

India’s potential in terms of rising personal incomes is mirrored across virtually all of the emerging world.  This should enhance gold buying in many of these nations where there is a history of holding gold as a protection against the mismanagement of governments (endemic) so we foresee continuing growth in gold demand – led by China, but supported elsewhere.  In the West, where the price tends to be set, though, gold is very much out of favour as the overall equities markets have generated far better returns over the past few years.  But there is an underlying air of worry regarding the likelihood of continuing stock market growth.  Indeed it could move the other way and if it does it could come down fast.  If this should happen then the perception of gold as both a store of wealth and as a corresponding insurance policy against collapse in other asset classes, could return.  If it does, and gold regains its upwards momentum of only a few years ago, the rise could be rapid.

Even if not – gold is always more than welcome as a gift, as it was in biblical times and throughout history.  But it also has the huge potential to increase in value over time which very much makes it the gift that can keep on giving.  Give your loved ones a gift of gold for any festive time of giving – it will be hugely appreciated totally regardless of its short term performance – and its potential for value growth remains inordinately strong.  

14 Dec 2015 | Categories: Gold, China

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