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Gold Fueled by China’s Buying Binge

03/28/2011 1:30 pm EST


Daniel Gramza

President, Gramza Capital Management, Inc.

Emerging markets’ voracious appetite for gold is another compelling reason to go long, says renowned analyst Dan Gramza, who is also bullish on silver and copper.

I’m talking metals with Dan Gramza. Hey Dan!

Hey Karen.

Well, everybody focuses on gold, and we have seen nice movement. Now, it’s kind of stalling out. What’s your outlook on gold?

Well, I think right now the fuel for gold comes in two ways. One is the uncertainty that we’re seeing in North Africa, Middle East. That becomes an excuse in times of uncertainty; people will flow back to that product, as we’ve seen in the past. 

The second thing, though, and I think this can sustain the longer term action in gold, which I’m bullish on, even though we are at record levels, it’s a change that we’ve seen this year, Karen, in China.

If you look at gold, starting in September, you have Ramadan, you have Diwali in India. You have Christmas and you have Chinese New Year. Typically, gold rises through those months because of that demand. 

India has consumed twice the amount of gold for many years.

China, this year, the typical gift for the Chinese New Year is a red envelope with money. What we’ve seen change is that China is consuming over 500 tons of gold.  India consumes about 333 tons a year. China has passed India on gold consumption because handing out little gold trinkets of the rabbit—which this is the year of the rabbit—has dramatically consumed a huge amount of gold. 

You have a middle class that’s growing that has capital now to spend and this is one of the ways we’re seeing it being spent.

So, where do you see gold going?

I don’t have a price for it. I look at more price behavior and as long as I see evidence that buyers are here, which I think is what we have now, I want to stay long in gold. 

How about silver?  If gold preserves well, silver will make you rich, right?

Karen, that’s a good one.

I think I stole it from somewhere.

Well, that’s a good one. Because silver is actually, if you look at it, gold does get all the attention, but silver’s rate of growth is actually faster than it is with gold. So, if you’re looking for a play in the precious metals, I’d also consider silver.

How about copper now? It’s at or near record highs.

Oh my gosh, that’s another one that’s really interesting. What’s interesting about copper is, first you are right.  We’re at 30-year highs. Copper was at $50.35 in 1979 with the Hunt brothers and all that.

Well, we’re up at over $30 right now, and the expectations are probably going to go higher. But, I think the rate of growth there, we are at record levels. It’s not a market that I would short and it’s one that I would look for opportunities to buy the dip.

Is it a China play as well, because of their huge infrastructure growth?

It is. The issue, if you look at precious metals in terms of gold and silver, the vast majority, 78% of gold is consumed in jewelry.

Silver, on the other hand, has a larger industrial component that comes into play. So, it goes back to also that industrial consumption of that product line.

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