Gold Accumulation is Yielding Changes
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In 2011 China imported, through Hong Kong, 428 tons of gold (proxied by the SPDR Gold Shares) (NYSEMKT: GLD). The latest figures have that rate of accumulation in China increasing. More than 79 tons through the end of February puts China on a path to acquire 479 tons in 2012. At that rate China will be the largest importer of gold in the world, over taking India, whose government, to defend the rupee, has turned hostile to gold importation which the population is fighting every step of the way.
A New Way to Price Gold?
As the Federal Reserve continues to talk markets into stability while the signals in the U.S. and Europe continue to deteriorate, the demand for gold continues to rise. It is no big wonder that the economy with the most dollars to spend is the one most to understand how undervalued gold is. As long as this trading range holds, the demand for gold in the East will not let up. Since PAGE was barred from trading gold contracts by the PBoC, the latest news is that Russia may pick up where China left off.
This is something that the U.S. markets have fought for a long time, to have either oil or gold traded in any other currency than U.S. Dollars. These markets are moats around the perception of the Dollar as the most liquid currency in the world and reserve quality.
Gold Granting a Yield?
One of the mechanisms to retard investment in gold in the West is to point out that Gold has no yield. In Vietnam, anyways, that is not true as the current rate is around 3% per year, not including any capital appreciation of the gold itself. This is because Vietnam is a three currency economy: the dong, dollar and gold all circulate in everyday usage. Because the State Bank is actively attempting to diminish the role of both the U.S. Dollar and gold, there are no more demand deposit accounts denominated in gold. Demand is still there, so out with gold in bank accounts and in with gold storage certificates which have no fees and pay a dividend.
The minimum deposit depends on the bank and the product, but it is usually between 1 and 3 taels, or 1.2056 troy ounces. Most of the major banks offer gold CDs from 1 month to 5 years. The best rates are offered in the 1-6 month range.
Eximbank offers a 3% CD of 1, 2 or 3 month maturity for a minimum 10 tael deposit. For smaller amounts the rate is 2.1%. Earlier in the year the rates at DongA bank rose to more than 4.5% but rates have dropped with lowered interest central bank rates. Other than dong deposit rates (12%), no other foreign currency with exception to the Australian Dollar (proxied by the CurrencyShares Australian Dollar Trust) (NYSEMKT: FXA) offers a better return than gold in Vietnam.
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