Gold Goes Where The Money Is – From West To East

James Steel once wrote: “Gold goes where the money is; it came to the United States between World Wars I and II, and it was transferred to Europe in the post-war period. It then went to Japan and to the Middle East in the 1970s and 1980s and currently it is going to China and also to India.”

This is one of the most basic principles about gold. It seems that not many people know about this, at least in the West. In contrast, the East truly understand this dynamic. It is no coincidence that the West considers gold as a Fear Trade while the East looks at it as a Love Trade (read our article about the prospects of gold in the East).

Wealth is being transferred currently from the West to the East. Good news or bad news, like it or not, that’s  fact. The rising Asian nations are producers and savers while the West are consumers. This point was made by the ex-president of the World Bank during a recent lecture. In it, he forecasts what the world’s cash flows would be like in 2030. Julian Philips, writer and long time follower of the precious metals, wrote a summary of the lecture :

  • For the last century and far more, 80% of the cash flow of the world flowed to what we know as the developed world where 20% of the people lived. Twenty percent of the cash flow went to the underdeveloped world where 80% of the world’s population lived.
  • By 2030, these numbers will have changed dramatically, with 35% of the cash flow of the world going to the developed world and 65% of the world’s cash flow going to the ‘emerging’ world, primarily China and India.
  • In addition, he says that there will be 1 billion middle class people in China by 2050 –a figure we had previously put at 300 million. This is more than the total population of the U.S.A. and the Eurozone put together. Worldwide there will be 3 billion people in the middle classes with two thirds of them in Asia.

Meantime, Eastern countries are organizing their gold market. With an insatiable demand coming out of China and India, mainly imports from Hong Kong to China keep at record highs. To make the yellow metal more accessible to their citizens, China announced to launch their first gold ETF. The ETF will be linked to the Shanghai exchange price, rather than the London bullion price that other gold ETFs employ elsewhere.

Earlier, we wrote about the evolutions in the Chinese silver market where new exchanges for the metals have been set up, and have grown incredibly fast.

The long term trend is clear!



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