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The Three Legs of the Precious Metals Bull: Part II



December 31, 2012 by · Leave a Comment 

By Jeff Nielson, Bullion Bulls Canada

In Part I, readers were again reminded of two of the primary reasons we should all be converting our decaying paper currencies to gold and silver. Currency dilution and price-suppression are realities which don’t merely suggest that bullion prices might rise in the future, but rather indicate why they must rise substantially.

However, precious metals investors don’t have to limit themselves to just those two reasons why bullion prices must rise dramatically over the longer term. There is a “third leg” to this argument which is an equally powerful dynamic, and also unequivocally certain to lead to much higher gold and silver prices.

Demographics:

I refer to the third leg of the precious metals bull as “demographics”, but in actuality this is just a reference to some of the extremely potent supply/demand fundamentals which are certain to drive bullion prices much higher.

In the global economy, it is common knowledge that there is a relentless transfer of wealth (and economic power) from West to East, as the thriving economies of Asia have real economic growth and real income growth amongst their populations.

In China, per capita income was only around $1,000/year (USD) in 2003. By 2011, that figure had exploded to nearly $3,500 (USD) per person, and China’s government is expecting a further doubling of that total by 2020. Given the explicit recommendation by official (i.e. government) media for the Chinese people to invest those rising incomes in bullion, we don’t simply suspect that Chinese bullion demand will continue to increase; we can be certain of it.

In India, per capita income finally crossed the $1,000/year threshold in 2011, which has already unleashed a wave of discretionary consumption; as low debt-levels/high savings and a low cost of living mean that Indian households are already rising above a subsistence existence at even these modest income levels.

However, Indians were voracious consumers of bullion even before they rose above this subsistence level, as their peasantry (who lack access to banking services) use their bullion holdings (generally in the form of jewelry) as their means of saving their wealth. This deep, cultural affinity for bullion is obviously unlikely to diminish as incomes rise further.

Instead, as indicated in a recent commentary; India has a huge, national gold-deficit – requiring the importation of hundreds of tons of bullion per year to satisfy domestic demand. With silver also widely held among the populace, there is a large silver deficit as well.

Meanwhile, in Indonesia – another very large Asian population with rising incomes and a growing economy – gold currency has already been introduced into the economy several years ago. And the appetite for gold in the Middle East petro-economies is nothing short of legendary. This is still another demonstration of the general understanding in Asia of a principle which is (as of yet) beyond the ken of Western Sheep: gold is money; paper is merely currency.

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