Will the Year of the Horse bring victory to gold?

The S&P 500 Index (CME:SPH14) has plunged 3% from its recent peak on Jan. 15. Currencies such as the Argentine Peso went down as much as 19%, the Canadian Dollar was down 4%, and the South African Rand dropped 3.5% in a month. Most analysts expect the Fed to trim another $10 billion from its QE program in the January FOMC meeting. While risk appetite is off, the U.S. Comex gold futures (COMEX:GCG14) have rallied 4% this year. Gold is off to a better start in the Chinese New Year of the Horse, which begins on Jan. 31.

The Symbol of the Horse

According to the SCMP, sales in several gold jewelry 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, and 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 jewelries 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.

About the Author
Austin Kiddle

Austin Kiddle is a director of the London-based gold broker Sharps Pixley Ltd.

comments powered by Disqus
Check out Futures Magazine - Polls on LockerDome on LockerDome