Gold and silver’s inflection point

For decades goldbugs have bemoaned that paper markets control and suppress gold and silver. Many of them have yet to realise it, but London forwards and Comex futures no longer set the price. It is increasingly set by Chinese savers and their demand for physical metal.

In this article, I estimate the depth of Chinese demand for gold, and assess global demand for silver in the year ahead. In gathering my evidence, I quantify China’s household savings, and point out that their alternatives to buying into rising gold values are few. This is evidenced by householders building their bank deposits, and for them there is now a more exciting alternative — gold and also silver of which more to follow.

The quantities of gold to satisfy likely investor demand, and this will almost certainly be reflected in silver as well, are truly staggering. Geopolitics reinforce the trend. Chinese investors are certainly aware that their central bank is selling dollars for gold, and that the Communist Party’s official position is to eliminate the use and possession of dollars as much as possible. They could hardly have a bigger hint from their authorities.

The background

It has taken nearly four years for gold to break out above its $2070 glass ceiling, first set in August 2020. Interestingly, the 55-day moving average is not far behind and also rising strongly (currently at $2285) which suggests that the current consolidation — and there will be more of them from time to time — is likely to be minor.

There are two reasons behind this development. The first is massive demand from China, and the second is a growing realisation that the dollar’s fiat days are numbered. It amounts to the end of paper pricing in London and Comex. Let’s look at Chinese demand first.

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