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LBMA 2011: Two Charts and An Opportunity

Plenty of reasons to be cautious were flagged up in today's "Bubble or Not?" debate...

Lots more to share from the second and last day of this year's LBMA Annual Conference here in Montreal. But the red-eye for London won't wait, not with Air Canada cabin staff starting a strike at midnight.

So two quick charts, both highlighted by Edel Tully, precious metals strategist at UBS, in her conference summary. First, she said she's adding this chart - hoisted from this morning's opening presentation by Albert Cheng of the World Gold Council in the China & India session - to her slide deck:

China Gold Demand and Supply

It shows the yawning supply-demand gap inside China's domestic gold market. Now the world No.1 for gold mining output four years running, China cannot satisfy its own private household demand.

Bigger picture, the chart makes a neat pairing with this slide, used by Franco-Nevada chairman Pierre Lassonde in Monday's keynote speech - and already a key fixture in any analyst or strategist's PowerPoint slides, according to Tully:

Global Assets under managment

Plenty of reasons to be cautious on gold were flagged by this afternoon's "Bubble or not?" debate. In particular, the risk of a parabolic rise - similar to how silver shot higher this spring - could see "safe haven" buyers scared off by volatility. (Silver investment flows have certainly turned "hesitant" since then, noted GFMS's Philip Newman.) Or maybe existing investors will soon begin tiring of year-on-year gains in gold, and start rotating into other asset classes instead of waiting for what they might forecast as a "top". Or maybe a blow-up in China - sparked by its own domestic credit and real estate markets, if not central-bank action to try and cool them, along with inflation - could see its tug on the world's gold supplies pushed the other way, as the feel-good affinity for gold is reversed by economic slowdown or even recession.

But for now, as one panellist put it in the Oxford-style debate - and with gold investment accounting for just 1% of the world's financial assets today - "This looks less like a bubble than an opportunity."

 

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