Gold is moving West to East...What is the World Trying to Tell Us?

by Scott CarterApril 15, 2014
degussa gold bar pile

Everyone knows that the sun rises in the East, moves across our skies, and sets in the West. Over the past few years, gold buying has also been rising in the East and moving in an extraordinary migration away from Western banks and out of the hands of Western investors. Central Banks in the Far East, the Middle East and Russia have been stockpiling physical gold … as the West has held onto stakes of paper ETF’s, futures contracts, and the unbacked dollar.

China seized its golden opportunity last year as its gold consumption increased 41%, surpassing an astonishing 1,000 tonnes for the first time ever. A rising Chinese middle class pushed demand for gold jewelry up 43% and gold bullion up 57%. Chinese consumption of gold has quadrupled in the last decade, toppling India to now take the top spot in global consumer demand.

India, now the second largest buyer of gold in the world, continues to consume gold at staggering levels for festivals, weddings, ornamentation and as an investment. In an attempt to discourage gold purchasing, the Reserve Bank of India has levied heavy taxes on gold imports to help cut its widening trade deficit. As a result, Indians have resorted to smuggling gold into the country via Nepal, Pakistan and Dubai as reports of gold hidden in flower pots, food processors and grains are becoming rampant. There is now increasing pressure on the Indian government to ease the tariffs.

In the last decade, Russia has added 570 metric tons of gold to its stockpile. By adding another 77 tonnes last year, it has increased its gold holdings to over 1042 tonnes. Putin has made no secret of his disdain for the US dollar’s dominance in the global financial system. He has orchestrated one of the biggest gold buy-ups in history to diversify Russia’s reserves and strengthen the ruble.

Don’t look now but Iraq is also buying gold. The Central Bank of Iraq bought 36 tons last month in an attempt to stabilize their currency and in effect doubled their gold reserves. It is the largest purchase by a single nation in three years!

So what do all of these countries know that we don’t? Is China grooming the yuan to be a new gold-backed reserve currency? Is India trying to control the world gold market? Is Russia trying to solidify its new power? Is Iraq preparing for an international currency collapse?

Global gold theories abound but it may come down to something far more fundamental. The East and West view gold differently. To citizens in China and India, gold is coveted at every level of society. It is their pension fund and their retirement plan. It is not only revered for its beauty, but it is held long-term for its enduring value. It is a stable and secure asset that is subsequently handed down generation after generation. To foreign governments, gold wealth is leverage on the world stage. It is how a country commands fiscal respect and the only way that smaller or emerging nations can stabilize their currencies and get an invite to the “adult table.”

So perhaps the West doesn’t “get gold.” Perhaps we are so enamored with the lure of the almighty “fiat dollar” that we have forgotten that physical gold is real money. Ultimately, it’s not a question of which view is smarter or better. The bottom line is that billions of people in the Far East, the Middle East, and Russia are amassing gold and accumulating wealth at historic levels. We would be wise to take note of this critical migration of capital and the economic power that accompanies it.

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