Western cultural influence has clearly made its impact in China.
Based on an alarming trend coming out of China, we can safely assume the fiat money propaganda-machine has broken our connection to real money.
China’s millennial generation — those born between the early 1980s and early 2000s — are in the process of breaking hundreds of centuries of tradition in the Middle Kingdom.
Recent data suggests that many Chinese youths are ditching a time-honoured investment tradition of spending their money on consumer goods. Instead of investing in gold like their predecessors, they’d rather spend money on shiny and expensive stuff.
BullionVault pointed out this dramatic change in trend last week:
‘China’s huge gold jewellery demand faces a continued fall thanks to younger consumers changing tastes.
‘Preferences among younger gold buyers are disrupting gold’s largest consumer market, recent data show, as competition from luxury alternatives purchases grows.
‘Figures from both Thomson Reuters GFMS and competitors Metals Focus show a persistent fall in Chinese gold demand since 2013’s surge, which coincided with the sharpest drop in global prices in three decades.’
Based on a report from the World Gold Council (WGC), data shows that Chinese youths would rather spend their money on things like diamonds, platinum and coloured gemstones.
Apparently, gold’s past success as an investment has encouraged the current generation to look for alternative ways to grow their wealth, with the WGC pointing out: ‘Only 35% of those consumers surveyed said they intended to purchase gold jewellery in the ensuing 12 months, not far above the 25% and 27% reported for platinum and diamond purchases respectively.’
Alternative ways of growing wealth are always important to look into. However, gold as an investment has always been a part of Chinese culture because gold equals money. Diamonds, gemstones and other precious metals like platinum can act as a bartering tool in place of money. But none of them have been used as money for over 5,000 years.
The WGC goes on to point out that Chinese millennials’ interest in investments outside of gold jewellery is a major contributor hurting gold demand in the country, noting, ‘The lower affinity to gold adopted by the younger Chinese generation compared to their precedents played a major role in the decline in gold demand.’
Gold isn’t the Problem
The problem here isn’t gold itself. The problem appears to be that Western consumption-culture has shaped how wealth is perceived in China too. Research and Markets released their ‘Global Gems and Jewellery Market 2017–2020’ report recently. The report confirms this new way for Chinese millennials to spend their money, noting that this demographic would much rather spend their cash on designer goods, luxury fashion items and technology like smartphones.
In other words, Chinese youths don’t see gold as proof of wealth. Instead, wealth is tied to exotic travel, plastic surgery and expensive designer items.
Why have gold when you can have a Gucci handbag?
While young people in China are rapidly breaking the connection between gold and money, some Westerns are coming to their senses. Private-investor demand for both physical gold and silver bullion appears to be increasing.
Source: Bullion Vaults
[Click to enlarge]
In this case of gold, over the past four years, investor demand has increased as the gold spot price (brown line) has fallen.
This gauge tells us how investor sentiment is moving through the market. Falling gold prices throughout July increased private interest in holding the physical metal.
According to BullionVault, this is the seventh month running where the number of net buyers has been higher than the number of net sellers.
It’s a similar story for silver as well, as you can see in the chart below. The silver price generally tracks the gold price; each time the value of silver falls (grey line), more private investors (light blue line) buy silver.
Source: Bullion Vaults
[Click to enlarge]
These two charts give us a clear indication that Western investors are increasing their gold holdings. In the future, we hope Chinese youths do the same. Especially as Asian demand acts as key support for the gold price.
Editor, Markets & Money
PS: Physical bullion — and not just gold exchange-traded funds — is an important part of long-term wealth growth. However, there are other ways of boosting your portfolio too.
In my view, while having 5–10% of your wealth in gold is important, you might also want to consider a similar allocation to small-cap stocks. Sound crazy?
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