Gold price set to soar in 'Asian century'
The liberalisation of Asia’s financial system and the growing wealth of its populations are expected to boost demand for gold and push the price of the key commodity over $US2400 an ounce by 2030, ANZ predicts.
In a report titled East to El Dorado: Asia and the future of gold, released on Wednesday, ANZ said Asian gold demand would develop steadily as the emerging region’s consumption patterns began to more closely resemble those of developed nations.
The bank estimated annual retail and investor demand for the precious metal in the 10 largest economies in Asia, which it dubbed “the A10” – China, India, Indonesia, Japan, South Korea, Malaysia, the Philippines, Singapore, Thailand and Vietnam – could double to 5000 tonnes within 15 years. ANZ chief economist Warren Hogan told Fairfax Media several fundamental economic arguments detailed in the report strongly refuted claims the gold price was on a downward trajectory.
Mr Hogan said increasingly higher incomes in the A10 would mean more gold jewellery would be purchased, noting that China would form the backbone of gold demand going forward. Despite total demand having risen significantly in recent years, on a per capita basis, China remained well behind most developed markets. In 2012, China and India consumed about 0.8 grams of gold per person. As regional GDP per capita expanded, per capita gold demand could rise to as much as 1.2 grams, a figure more in line with Germany, Canada and the United States, the report said.
The gold holdings of a growing number of institutional investors would also increase as financial systems were liberalised and serviced by a larger body of professional money managers, Mr Hogan said, and regional central banks would continue to increase their gold reserves to provide confidence in newly floated currencies. “This will all support a significant increase in the price … but the argument about gold as an investment is such an important element of all of this,” Mr Hogan said.
“Something I have put forward very strongly personally in this report is that gold has a role as an investment. That has been a very contentious issue in the last 20 years. Your purists argue it doesn’t yield anything and there is no evidence that it protects you against inflation. But there is evidence it protects you against financial calamity, whether that be hyperinflation or a financial crisis.”
Mr Hogan said as key defensive assets, such as cash and bonds, became less attractive due to low or negative yields, “gold should be more seriously viewed as a defensive asset”. And that was something he thought the emerging A10 economies would capitalise on.
“It will be in their DNA. The investment view that has emerged in the last 30 years that gold is hopeless as an investment, is not an Asian view,” he said. “So that’s why we argue that the growth of institutional funds under management by professional money managers are going to explode in the next decade, particularly in China. They will naturally be more receptive to investments in gold and they will be looking for vehicles to do that.”
ANZ’s central case is that the gold price would remain within a broad range of $US1100 an ounce to $US1600 an ounce over the near-term, gradually rising to over $US2000 by 2025 and $US2400 by 2030.
With demand for the yellow metal expected to skyrocket, ANZ anticipated supply from global mines would struggle to keep up and scrap gold would become an increasingly important part of future gold supply. Encouraging expansion of mine supply and more scrap onto the market would require higher prices, the report said.
China was expected to play a bigger role in gold pricing, due to its increasing size and importance in the global gold market. ANZ forecast the Shanghai Gold Exchange and Shanghai Futures Exchange would continue to build market share in gold trading and as the Renminbi further developed as an important currency in global trade.
The report came off the back of the bank’s Caged Tiger report released 12 months ago, which suggested Asia’s financial system would be larger than the United States and Europe combined by 2030, and the A10 will account for half of global gross domestic product by 2050, in a “tectonic shift in the global economic landscape”.