With the Federal Reserve’s decision on whether or not to taper the stimulus program looming over safe haven investments, the recent months have also been back and forth for the yellow metal. A big surge from China however, may provide some help for gold investors.
China Plans to Reform
Since Chinese president Xi Jinping came into office there have been many mentions of economic reform, however little has come to pass. Finally, this Saturday marks the beginning of talks that will draft a blueprint for economic reform in China. It is being touted that this year’s conference will be as powerful as 1978 when China moved into a more market-oriented direction. If these talks go well, it will mean huge changes for China that will undoubtedly affect the investment world.
Gold and Economic Change
Although the changes coming for China may be positive ones, change is still change. When this happens, investors naturally flock to safe haven investments like precious metals. Investing in metals like gold typically helps to protect wealth during troubled economic times. With such a large change coming, Chinese investors may start to look more favorably at gold.
China is the world’s 2nd largest consumer of gold in the world – just barely behind India. Now with the high import tax on gold in India, China may move into the number one spot this year. When a nation with this much purchasing power begins to increase its already voracious appetite for gold, the yellow metal may stand to see significant support.
Gold Offers an Alternative to the Housing Market
These economic changes will naturally have an impact on the housing market. Chief strategist Patrick Chovanec told CNBC, “Meaningful reform will be painful and disruptive, and I suspect a lot of Chinese will seek the perceived safety and portability of gold. That will be particularly true if the bubble in China’s property market pops.” He continued to say,”…if real estate sees a major correction, many Chinese will turn to gold.”
Furthermore, an expansion of property tax will make investors less willing to rely on housing, thus turning to gold as an alternative. Given that there is a big change on the horizon for China, and the decreasing number of options for wealth preservation, this economic powerhouse could provide a welcomed support for gold values.
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References: CNBC, CNBC 2