Love Trade Vs. Fear Trade: Which One Drives Gold Prices?
(Kitco News) - Investors should be aware that it is the love trade that drives gold demand, said U.S. Global Investors CEO Frank Holmes, adding that the North American market could be waking up to this soon.
“There are two drivers to the price of gold - the fear trade, which dominates the psyche of North Americans and the love trade, which [is present] in China, India, and the Middle East. Sixty to seventy percent of all gold demand is based on love trade, which is a key long-term factor,” Holmes told Kitco’s Daniela Cambone on Valentines Day.
The love trade has been doing quite well during the last two decades, driven by growing incomes in Asia.
“In the past 18 years we have seen a phenomenal 45 degree angle in rising GDP per capita in China and India and the absorption of gold in those counties is [incredible],” Holmes noted.
People in Asia prefer to buy 24-carat gold jewelry as gifts, security and investment, the U.S. Global Investors CEO said, adding that this trend is coming to North America as well.
“What’s important for investors to recognize is that now we have a company called Mene, which allows you to buy 24-carat gold jewelry at a modest mark-up and deliver it like Amazon. I think North Americans are going to start appreciating jewelry without the 500% mark-up on the price of gold,” he said.
Aside from demand, prices have also been doing well this year aside from a lull that began along with the Chinese New Year.
“We had a strong rally that faded off with the start of the Chinese New Year, which historically happens. It will resume again. Overall, car loans are down, housing is still struggling. So I don’t think you are going to see long-end of the yield curve rise dramatically, which means that the dollar will basically peak and that bodes well for gold and for the fear trade people,” Holmes said.