Issue link: http://resourceworld.uberflip.com/i/759903
D E C E M B E R / J A N U A R Y 2 0 1 7 www.resourceworld.com 47 Silk Road gold investment program which is a $16 billion fund. The area of interest will be along the old Silk Road but is not limited to this as it will be buying into international gold development projects and purchasing equity of non-Chinese gold miners. Transactions are likely to occur through Shandong Gold Mining Group and Shaanxi Gold Group, both Chinese gold miners. Looking at the demand side, total fab- rication demand for 2016 is projected to account for 97.5 M ounces of gold which is composed of industrial demand (electronics, dental, and medical) and jewelry. China's portion of fabrication demand is the high- est worldwide at 24.48 M ounces projected for 2016. What is important to note though is that jewelry is the critical variable in the demand equation as it represents 87% of total gold fabrication demand worldwide. Jewelry demand from China is often noted to spike during the start of the cal- endar year due to the Lunar New Year festival which involves heavy buying of gold jewelry for gifts. This is often referred to as seasonality and is known to be the strongest months for gold prices during the year. China is forecasted to purchase 22.86 M ounces of gold jewelry in 2016. The Chinese Lunar New Year is scheduled for January 28, 2017. Investment demand is projected to cre- ate 16.5 M ounces of global gold demand which is comprised of purchases of official coins, bullion, and medallions. Investment demand is expected to rise in China in 2016. Another important factor for Chinese investors to consider is a hedge against a devaluing Yuan. The CNY/USD exchange rate began 2016 at 0.154 and at the time of writing closed at 0.147 CNY/US. Gold denominated in the Chinese Yuan has yielded a higher return versus holding gold in US dollars due to the weakening Yuan against the US dollar during 2016. An increase in invest- ment demand by the Chinese has also been driven by a declining stock market and a weak property market in China. The People's Bank of China was a net buyer of gold in 2015 and is estimated to have purchased 7.4 M ounces accord- ing to CPM Group. The PBOC along with other central banks are expected to be net buyers in the near term which will be a supportive factor for rising gold prices. In 2016 it is estimated that central banks globally will purchase 10M ounces with the majority of the buying coming from China, Russia, Kazakhstan, and Ukraine. With the PBOC having shifted their policy stance towards gold, the Chinese central bank now views it as a monetary reserve asset, a store of value, and a hedge against currencies. The PBOC has purchased most of its gold from domestic refiners in the domestic gold market and is expected to continue doing so in the coming years. The Chinese government and central bank are growing their gold reserves to hedge against potential inflation in the US dollars, which is on the rise, as they hold $3.3 billion of US monetary reserves. In 2015, central banks around the world held 1,039.4 M ounces of gold per CPM Groups data. The United States held the largest gold reserve at 261.5 M ounces which is multiples of China's 56.66 M ounces of reserves. If the PBOC wants to ensure the Yuan's competitiveness as a future global currency they will have to grow their gold reserves in a material manner. In a final thought addressing inves- tors skepticisms about China's impact on the gold price, CPM Group has stated, "Chinese gold supply and demand do have the dominant influence on global gold prices, even if that influence is being mani- fested in prices nominally set in London and New York. Further evolution of the global, regional and national gold markets will continue to be reflected in the gold price setting mechanisms worldwide." n The financial figures, industry data, information, and opinions contained in this article have been sourced from CPM Group's 2016 Gold Yearbook. This article is provided for entertainment pur- poses only and is not intended to be investment or professional advice of any kind. Always consult an independent registered investment advisor prior to making any financial decisions.