Asia’s hunger for gold.

This week the ANZ released a report by the name of “East to El Dorado: Asia and the future of gold”.  The report examines the future consequences of Asia’s already established trend towards financial unshackling and wealth generation. It is not hard to see the impact of Asia’s current desire to accumulate wealth in our day to day life and the current discussions relating to foreign property investment in Australia are but one example. 

According to the report, ANZ has projected that the coming one to two decades will see a doubling of gold demand to 5000 tonnes within the ten largest Asian economies.  These estimates accommodate both investor and retail demand and result in an anticipated target price of $US2400 to $US3,230 within that time frame. Improving employment conditions and disposable incomes within the A10 are expected to see consumer behaviour to better approximate that found within traditional developed nations and it follows that an increase in gold jewellery (Asia’s preferred investment form) demand is to be expected.

Listeners to today’s weekly wrap will learn of the extent of China’s demand alone.

For the investor, this suggests that gold will have a broader appeal in the future by becoming more available to those Asian cultures that tend to align themselves with precious metals as a store of wealth and protection.

It is important to keep in mind the real impacts of supply and demand when evaluating projections for various asset classes. Where traditional financial instruments can be easily created or diluted, physical assets (especially those subjected to global demand) such as precious metals are finite in quantity. Consequently, higher demand encourages augmentation of existing mine infrastructure and recycling efforts. Such activities are seldom achieved without higher prices.