Two Big Gold Buyers Painting Bullish Picture for Gold Prices
Gold performed well in 2023; the price of the yellow precious metal jumped by more than 13% during the year. Since the start of 2024, gold prices have come down a little, but don’t let this fool you into thinking that this is it for gold. 2024 could be another solid year for the precious metal.
Why be bullish on gold?
Take a look at what’s been happening in India and China, two of the biggest gold-consuming nations. Knowing what’s happening in their respective economies could provide some guidance on where gold prices might go.
China’s Economy Slows & Uncertainty Grows: Good for Gold?
As it stands, the Chinese economy is going through a rough patch. The economic growth rate in the country has stalled, and there’s outright deflation.
Furthermore, there’s a real estate crisis happening in China, and that’s causing some to question whether a bigger debt crisis is around the corner. Chinese consumers are pessimistic, so the People’s Bank of China (PBOC) has cut a few of its key benchmark interest rates, but that hasn’t really spurred demand in the country.
As for investors, they seem to be panicking about China. Take a look at the chart below; it plots the Hang Seng China Enterprises Index, which is one of the major indices that track the performance of the Chinese stock market. It’s currently in a bear market, having dropped by close to 30% over the past year.
Chart courtesy of StockCharts.com
With so much economic uncertainty in China, several assets haven’t been doing too well. It’s possible that this will increase the demand for gold. Remember, gold offers some certainty and has a great track record of preserving wealth.
Here’s the kicker: there are hints that the demand for the yellow precious metal in China has, in fact, been increasing.
One way to look at it would be by the gold imports into China via Hong Kong. In November 2023, China imported 36.801 metric tons of gold. That was up by 37% from October 2023 and up by 118.4% from November 2022. (Source: “China’s Net Gold Imports via Hong Kong Rise in November,” Mining.com, December 28, 2023.)
Mind you, the PBOC controls the amount of gold that enters the country, and there are also other ports from which gold may enter China. So, the Hong Kong figures are just a piece of the bigger puzzle. Therefore, it’s promising, to say the least.
If the demand for gold in China continues to increase, it would likely be nothing but good for gold prices.
Prosperity in India Could Trigger Gold Buying
In India, you see the opposite of what’s been happening in China. Economic growth and asset prices in the country have been doing extremely well.
Overall, there’s a significant amount of positive news flow out of India, and the country is looking like one of the few bright spots in the global economy.
Take a look at the chart below. It plots the Sensex Stock Market Index, which tracks the Indian stock market’s performance. It’s up by close to 18% over the past year, and the trend continues to point upward.
Chart courtesy of StockCharts.com
Could prosperity in the Indian economy lead to more gold consumption? With the average Indian doing relatively better than before, the demand for gold could increase in the country.
The cumulative gold imports in India in the first 10 months of 2023 amounted to 630 tonnes. The monthly average amount of gold imported to India in the third quarter of 2023 was 73 tonnes. In the first quarter of 2023, it averaged 40 tonnes. (Source: “India’s Gold Market Update: High Prices Tempering Demand in Q4,” World Gold Council, December 21, 2023.)
Where’s the Opportunity for Gold Bugs?
Dear reader, I’ve written extensively about the fact that central banks around the world have been busy quietly loading up on gold, but that doesn’t mean I’ve been ignoring what’s been happening in two of the biggest gold-consuming nations.
The situations with India and China have been making my convictions on gold prices stronger, and I continue to believe that $3,000-an-ounce gold could be achieved much sooner than many think.
In the near term, though, I’m keeping a close watch on the price level around $2,000 an ounce. This price has held as a strong support level recently. On the upside, if gold prices move beyond their recent highs of about $2,150 per ounce, it could bring in more buyers.
Where’s the opportunity?
Gold miner stocks have really underperformed compared to the price of gold. If the yellow precious metal catches a bid, though, mining stocks could witness a robust move to the upside. If gold prices put on a similar performance in 2024 as they did in 2023, mining stocks could find new buyers and potentially beat the overall stock market by a huge margin.