The Chinese New Year of the Noble Horse: Love of the Horses and Gold
The S&P 500 Index has plunged three percent from its recent peak on 15 January. Currencies such as the Argentine Peso went down as much as 19%, the Canadian Dollar was down four percent, and the South African Rand dropped 3.5% in a month. Most analysts expect the Fed to trim another $10 billion from its QE programme in the January FOMC meeting. While risk appetite is off, the U.S. Comex gold futures have rallied four percent this year. Gold is off to a better start in the Chinese New Year of the Horse, which begins on 31 January.
The Symbol of the Horse
According to the SCMP, sales in several gold jewellery stores in Hong Kong saw a yearly jump of 15 to 20% in January. Two simple reasons. Gold prices have declined almost 30% in 2013. Horses are symbols of nobility, victory, and intelligence. Chinese consumers, including those from the Mainland, are snapping up more golden horse accessories and gifts this year compared to last year’s golden reptiles - snakes are viewed as both malevolent and divine by the Chinese.
China Tops World Gold Demand and Supply
While the gold-backed ETF holdings plunged 869 tons in 2013, many of these tonnages have gone into refineries in Switzerland and are bought as bars, coins and jewelleries by the Asian consumers, especially the Chinese. As India has severely curbed gold imports to restrain its current account deficit, China has become the world’s largest gold consumers. China was also the top gold producer last year with an estimated production of 437 tons. Its gold demand has jumped 32% in 2013 according to the GFMS Gold Survey.
Risks Mean Opportunities for Gold
Gold is not only popular culturally in China but is now regarded by individuals as an investment just like any other asset classes. Fireworks in the financial sector of China have already started in the New Year of the Horse. With China’s growth slowing down, financial reforms galloping, and the not insignificant risks of defaults in the trust products and shadow banking, gold may just find more takers as gold clearly lacks any credit risks and can provide great portfolio diversification.
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