Today's chart is a reconstructed state space diagram of the gold-silver ratio (monthly) over the past eleven years.
It's been awhile since we last looked at this chart. At that time, in March, we were close to the middle of this graph, near where I thought economic crisis beckoned. History, it seems, doesn't repeat, but perhaps it does rhyme. For what it is worth, we have bypassed that spot, but the trajectory is similar to what we saw in late 2008--we are seeing a rapid rise in the gold-silver ratio. At the same time, the oil price is cratering, which fits into the idea of deflation I have been proposing.
I can't comment on the feel on the street, as I am in China rather than North America this time. Certainly here in China, everyone still feels confident. They all believe that all they have to do is buy property and everything will be fine, and they find my interest in gold curious, but for all they know, perhaps all foreigners are so strange.
Even so, someone in China is buying a lot of gold. If the numbers here are correct, then gold is being bought at a rate of over 2000 t per year, which amounts to something about 1.5 g per person in China. However, you do not find gold offered in such paltry amounts. The smallest bar I have been able to find is 20 g, and it is more common for people to buy 50 or 100 g at a time.
Gold is easy to find here--you can buy it at any branch of any bank (or so I am told--I have only tried it at my local branch of my bank). So perhaps it is just all the banks that have bought it--and for now, they are making it available to anyone with a few yuan to spare.
It's been awhile since we last looked at this chart. At that time, in March, we were close to the middle of this graph, near where I thought economic crisis beckoned. History, it seems, doesn't repeat, but perhaps it does rhyme. For what it is worth, we have bypassed that spot, but the trajectory is similar to what we saw in late 2008--we are seeing a rapid rise in the gold-silver ratio. At the same time, the oil price is cratering, which fits into the idea of deflation I have been proposing.
I can't comment on the feel on the street, as I am in China rather than North America this time. Certainly here in China, everyone still feels confident. They all believe that all they have to do is buy property and everything will be fine, and they find my interest in gold curious, but for all they know, perhaps all foreigners are so strange.
Even so, someone in China is buying a lot of gold. If the numbers here are correct, then gold is being bought at a rate of over 2000 t per year, which amounts to something about 1.5 g per person in China. However, you do not find gold offered in such paltry amounts. The smallest bar I have been able to find is 20 g, and it is more common for people to buy 50 or 100 g at a time.
Gold is easy to find here--you can buy it at any branch of any bank (or so I am told--I have only tried it at my local branch of my bank). So perhaps it is just all the banks that have bought it--and for now, they are making it available to anyone with a few yuan to spare.
"They all believe that all they have to do is buy property and everything will be fine, and they find my interest in gold curious"
ReplyDeleteAn interesting comment, and counters a lot of the memes put out by the goldbugs which seem to imply that Chinese have only love for gold, and not any other speculative investment. As you note, 2000t on a per capita basis can show it is a small market relative to property and stocks as investments.
I should have mentioned jewelry, where the gold is sold by weight at about a 25% premium to the value of the metal. Jewelry shops are common in 'department stores', which are like shopping malls back in North America.
DeleteHow does a 1.5g/person/y rate of consumption compare with the west? I mean, China's westernizing, right?
ReplyDeleteI find it boggling that my middle-class Western lifestyle has been out of reach to almost 90% of the people of the world, and even more boggling that this is changing as we speak.