In addition, the Organisation for Economic Co-operation and Development (OECD) Composite Leading Indicator has been heading in a positive direction. This leading indicator provides early signals of turning points in business cycles, including economic activity. Historically, metals performance has closely followed this leading indicator, so as developed markets improved, the S&P GSCI Industrial Metals Index increased.
Gold is certainly a contrarian buy these days, but the big story that is affecting the supply of gold is how the physical metal continues to migrate east. According to Paolo Lostritto of National Bank, year-to-date net physical imports by China equate to approximately 50% of global mine supply. This is in addition to the reports from GFMS suggesting that China is the world’s largest gold producer with an estimated 400-plus tonnes annually, or roughly 14% of global mine supply.
As Portfolio Manager Ralph Aldis likes to say, the gold going into China won’t be coming back to the market. This journey is a one-way trip for gold.
However, Chinese demand for gold is only one ingredient in the very significant Love Trade. With the increasing gold import restrictions in India, the country’s leading position as the world’s biggest buyer of gold is in jeopardy. I’d like to get a firsthand perspective on what is really taking place with the demand for gold and get a flavor for what’s going on, so I’ll be traveling to India later this month.
These charts are only a fraction of the slides I will be presenting to investors over the next several weeks. If you’d like a copy of the presentations, visit U.S. Global at http://www.usfunds.com/investor-resources/publications/presentations/.