Gold is up at $512 continuing yesterday’s rampage. A run-up in gold scares the heck out of any investor over 50 as it has, for 1,000 years, been a sure sign of economic troubles. I think this logic is flawed because governments no longer hoard gold, it is held by people, less in Krugerands and more in jewelry.
We have a Global phenomenon of tens of millions of people, a burgeoning middle class, of outsource workers who are affluent in their own country. We complain about all the jobs that went overseas but those jobs do land somewhere and those workers do become consumers and the great circle of money continues.
In China, one Million people a year enter the “middle class”. Middle class in China isn’t as shabby as you might think with the classification applying to households with $18-36K in assets. About the growth can be seen in India. If we assume that we add 1M and all of Europe only adds 1M and the entire rest of the world only equals another 2M, then we still have 6M people a year moving into the “middle class”. That’s the entire working population of the US in two decades!
What do these people do when they enter the promised land? What did you do when you got your first job. They eat, they go to movies, they buy something nice for themselves… GOLD!!!
Not just gold of course, Louis Vitton, Gucci and Chanel are having great decades as well but you may not have one of those brands but I bet you have something made of gold!
Let’s say that each of our 6M new consumers just buy one little trinket for themselves, just $200 worth of gold. That’s 1,200M a year (3M ounces) or 5% of global production. You can only take another 5% of global production for so long before you start putting pressure on prices…The pressure is on for physical gold.
And production is not increasing, gold, like oil, is a scarce recourse and we have tapped all the easy stuff.
“Demand is growing and production is falling.” That is according to the 2004 gold supply and demand trends report published by the World Gold Council which shows a contraction in supply against growth in demand. Don’t you wish you had read this report last year!
Don’t worry, it’s not too late – the 4M new middle class consumers this year didn’t read it either but they did see something nice over at the mall they might want to pick up!
ps – Just copy this article and retitle it Copper Rush, Platinum Rush, Silver Rush, Oil Rush, Washer/Dryer Rush, TV Rush, Air Conditioner Rush…
The global economy is a juggernaut, if we can avoid a meltdown there will be another America’s worth of consumers in just 20 years, unfortunately for the slow moving American companies, 90% of those consumers are not Americans…
