China Gold Demand Drop? So What?

Now we will get to test the theory that little of what most people consider fundamentals for gold actually matters.  That would be things like Indian wedding season, jewelry demand, central bank buying/selling and the one hyped in the gold “community” more than any other, China gold demand.

From Hard Assets Investor:  Gold Flat Amid China Demand Drop

According to the China Gold Association, demand in the world’s largest No. 1 consumer may fall 17 percent this quarter from a year ago. An official for the trade group said the decline wasn’t unusual given the huge spike in demand last year.

“Last year was a peculiar year when we saw a big fall in prices,” Zhang Yongtao, vice chairman of the CGA, said. “People bought a lot of gold, and I think demand will start climbing again once the festive and marriage season begin later this year.”

‘But but… China gold demand is strong!!’ kept people bullish last year as gold got blown up.  Marriage season?  Please.  For me it is investment demand that matters.

We have been following disgusting charts like this one of copper in NFTRH, with China now providing the answer about why it looked so ugly in the face of rising commodities and a possible new inflation cycle.  Copper is after all a cyclical commodity, which had been key to the China build out and thus, a hell of a lot of speculation.

But gold, especially given the ongoing age of Inflation on Demand ©, is about monetary investment demand. This is especially true with the Euro crisis now having come full circle, almost as if it never happened. Gold vs. Euro is now free to resume being constructive because all that hot, panicked and knee jerking money has been wrung out.

Now, looking at the commodity currencies of Australia and Canada, Uncle Buck and the Yen, there is not much competition in the major currencies, each of which seems to be suffering its own form of waning confidence.  Anyone investing in gold should be doing so as protection against what is happening to their native currency, not for marriage season or jewelry sales.

You don’t invest in gold in crisis.  If anything, would-be sellers should sell it.  You invest in gold when it is marginalized or even hated.  That is what China was doing last year, as the price declined for reasons having nothing to do with China demand.

For every buyer there is a seller and while people can blame nefarious forces all they want, the pressure on gold was all those buyers that forced a blow off top in 2011.  Certain entities may have given the metal a gentle push, but it was the weight of an unhealthy investor base that was the price of gold’s undoing.