BlackRock’s Catherine Raw expects gold demand to remain high as Chinese investors continue to buy

Catherine Raw, co-manager of the BlackRock World Mining Trust, says that demand for gold is set to remain high in China as the economy improves and incomes rise.

It may be the Year of the Snake, but demand for gold and the price traditionally climbs up ladders ahead of the Chinese New Year. There is a seasonality pressure for gold, with significant increases experienced during two key periods: the Indian wedding season and Chinese New Year. The monthly demand for it on the Shanghai Gold Exchange over the past six years suggests that in the lead up to the Lunar New Year, volumes rise considerably with over 20% of annual demand in December and January.

Gold has a strong cultural affinity in both countries and is traditionally given as a gift. In China, this has gathered momentum, as people have benefited from a robust growing economy and rising middle classes with access to larger disposable incomes.

In the last six years, volumes traded on the Shanghai Gold Exchange have increased by more than 2.5 times, suggesting this is a growing trend. This evolution has occurred during a period where investors have sought out both the safe haven qualities of gold during periods of currency debasement and economic uncertainty and for its diversification benefits. These attributes have attracted both individual investors and central banks to the yellow metal, which when coupled with only modest supply growth from the gold industry has propelled it to outshine most other asset classes over the past decade, returning 384% (Source: Datastream to 31/12/2012 in USD). This long term trend of growing demand coupled with challenged supply is highly supportive of a rising gold price.

We expect that a growing economy and rising incomes in China will contribute to demand in the region continuing to grow.

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