Last year I touched on the three reasons why demand for gold was surging. Among the powerful driving forces is the very real fundamental role that growth in China is playing. I said:
“I think one thing that can be concluded from all of this is that demand for gold is likely to remain strong so long as the Euro crisis continues, the balance sheet recession in the USA continues and China remains the primary driver of the global economy. These look like pretty good bets to me.”
Yesterday, US Global Investors published a nice bit of research confirming the China theme. They show that there is a very strong relationship between rising incomes in China/India and gold prices:
“The key to this seasonal strength over the past few years has been demand from China and India. You can see from the chart that the rise in gold prices has been closely tied to the rise in gold demand from China and India. Back when the average per capita income in China and India was well below $1,000 a year, gold prices hovered just above $200 an ounce. As average incomes have approached $3,000 a year over the past decade, gold prices have followed. With the long-term outlook for wages in both these economies rather rosy, gold demand should continue to feel the trickle-down effect.”
Source: US Global Investors
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.