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Gold is one of the few invest- ments to maintain constant growth over the past decade， rocketing from $255 per ounce in 2001 to a historic high of $1，935 in 2011. Although its price does dip slightly from time to time， investors of all shapes and sizes are confident that its value will hold steady and increase. In this context， a two-year period of stagnancy of gold prices since 2011 was deemed by many as a prelude to its next great bull run.
However， a sharp drop in the gold price starting in mid-April of this year has the optimists second guessing. From April 12 to 16， the gold price per ounce witnessed its biggest drop since 1980， plummeting 16 percent from $1，570 to $1，320. Despite a slight rebound later， gold saw another steep drop in late May. On May 20， the London gold market closed at $1，354 per ounce.
Surprisingly， Chinese consumers weren’t afraid of buying the plummeting commodity. The day after the historic drop of the international gold market， Caibai Department Store， the largest gold jewelry store in Beijing， was overflowing with buyers. Within 10 days， consumers on the Chinese mainland bought 300 tons of tangible gold， accounting for one tenth of the world’s annual gold output. In April， 100 tons of gold were sold in Guangdong Province alone. Gold purchased from banks wasn’t even included because it is considered an investment rather than consumption.
Over the past 12 years as gold prices were rising， China evolved from a negligible role in the global gold market into the world’s biggest gold consumer. The most recent gold rush attracted not only housewives on the Chinese mainland， but also buyers from China’s Hong Kong and other Asian countries including Singapore， Thailand， and India. Although the Indian government recently substantially raised gold import tariffs， on April 16 and 17， 2013， daily gold sales reached four tons， three times more than usual， in Mumbai， the biggest gold market in India.
Hong Kong has long been considered the gold trading hub of Asia. Due to the surging demand for tangible gold， the gold holdings of the Chinese Gold & Silver Exchange Society of Hong Kong was nearly drained， something the organization had never seen in five decades. Statistics show that during the three-day May Day holiday this year， gold sales reached 40 tons in Hong Kong. Conservative estimates place Hong Kong’s gold sales volume at 100 tons since the metal’s historic plunge in price. According to a Reuters report on April 24， due to unprecedented demand for gold， the U.S. Mint announced a temporary suspension of shipments of 0.1-ounce gold coins. When more supply arrived on May 28， the gold coin sold for $195. That figure put a full ounce at $1，950， even higher than the metal’s top price in 2011.
Not only have ordinary consumers rushed to buy gold during its decline， but some hedge funds have chosen to roll the dice. Even central banks of some countries joined the rush. The monthly gold purchase report released by the International Monetary Fund （IMF） on April 27 indicates that the gold bought by Russia， Kazakhstan， and Azerbaijan in April increased by 75 percent over the previous month， and the Turkish central bank also increased its gold reserve by a big margin. Some experts predict that the amount of gold purchased by central banks globally will surpass last year’s figures， and possibly even the historic high in 1964.
Strikingly， the trading volume of“paper gold” has dropped substantially as the price plunged， whereas demand for gold coins and other tangible gold items has risen. “That goes to show you： people don’t want certificates， and they don’t want a bank guarantee，” explained Terrence Duffy， executive chairman of CME Group， in an April 29 interview. “They want to hold the real thing in their hands.”
Gold is an obvious choice to effectively hedge against the risks facing the current global monetary system， especially with historical context. The United States amassed 75 percent of the world’s gold reserves by 1944， enabling a US-dollar-led international monetary system pegging the US dollar to gold at $35 per ounce.
“For ordinary people， purchasing gold is the best way to protect themselves against inflation，” illustrates renowned economist Andy Xie. “The central banks of all countries are helping a small group of people snatch wealth from the rest. Buying gold enables ordinary people to fight central banks.” In a period when gold prices continue dropping， ordinary consumers are rushing to buy gold not for its glimmer， but because they don’t trust the current monetary system and want to protect their wealth.
However， a sharp drop in the gold price starting in mid-April of this year has the optimists second guessing. From April 12 to 16， the gold price per ounce witnessed its biggest drop since 1980， plummeting 16 percent from $1，570 to $1，320. Despite a slight rebound later， gold saw another steep drop in late May. On May 20， the London gold market closed at $1，354 per ounce.
Surprisingly， Chinese consumers weren’t afraid of buying the plummeting commodity. The day after the historic drop of the international gold market， Caibai Department Store， the largest gold jewelry store in Beijing， was overflowing with buyers. Within 10 days， consumers on the Chinese mainland bought 300 tons of tangible gold， accounting for one tenth of the world’s annual gold output. In April， 100 tons of gold were sold in Guangdong Province alone. Gold purchased from banks wasn’t even included because it is considered an investment rather than consumption.
Over the past 12 years as gold prices were rising， China evolved from a negligible role in the global gold market into the world’s biggest gold consumer. The most recent gold rush attracted not only housewives on the Chinese mainland， but also buyers from China’s Hong Kong and other Asian countries including Singapore， Thailand， and India. Although the Indian government recently substantially raised gold import tariffs， on April 16 and 17， 2013， daily gold sales reached four tons， three times more than usual， in Mumbai， the biggest gold market in India.
Hong Kong has long been considered the gold trading hub of Asia. Due to the surging demand for tangible gold， the gold holdings of the Chinese Gold & Silver Exchange Society of Hong Kong was nearly drained， something the organization had never seen in five decades. Statistics show that during the three-day May Day holiday this year， gold sales reached 40 tons in Hong Kong. Conservative estimates place Hong Kong’s gold sales volume at 100 tons since the metal’s historic plunge in price. According to a Reuters report on April 24， due to unprecedented demand for gold， the U.S. Mint announced a temporary suspension of shipments of 0.1-ounce gold coins. When more supply arrived on May 28， the gold coin sold for $195. That figure put a full ounce at $1，950， even higher than the metal’s top price in 2011.
Not only have ordinary consumers rushed to buy gold during its decline， but some hedge funds have chosen to roll the dice. Even central banks of some countries joined the rush. The monthly gold purchase report released by the International Monetary Fund （IMF） on April 27 indicates that the gold bought by Russia， Kazakhstan， and Azerbaijan in April increased by 75 percent over the previous month， and the Turkish central bank also increased its gold reserve by a big margin. Some experts predict that the amount of gold purchased by central banks globally will surpass last year’s figures， and possibly even the historic high in 1964.
Strikingly， the trading volume of“paper gold” has dropped substantially as the price plunged， whereas demand for gold coins and other tangible gold items has risen. “That goes to show you： people don’t want certificates， and they don’t want a bank guarantee，” explained Terrence Duffy， executive chairman of CME Group， in an April 29 interview. “They want to hold the real thing in their hands.”
Gold is an obvious choice to effectively hedge against the risks facing the current global monetary system， especially with historical context. The United States amassed 75 percent of the world’s gold reserves by 1944， enabling a US-dollar-led international monetary system pegging the US dollar to gold at $35 per ounce.
“For ordinary people， purchasing gold is the best way to protect themselves against inflation，” illustrates renowned economist Andy Xie. “The central banks of all countries are helping a small group of people snatch wealth from the rest. Buying gold enables ordinary people to fight central banks.” In a period when gold prices continue dropping， ordinary consumers are rushing to buy gold not for its glimmer， but because they don’t trust the current monetary system and want to protect their wealth.