China Buys the Dip (and India, and Japan...)

“Monday’s plunge has excited the Chinese market,” said the perky anchor on China’s English-language CCTV News.

As we write, gold sits about where it did 24 hours ago, at $1,386. And CCTV devoted the first 10 minutes of its Biz Asia program this morning to gold.

There was a report from one of the country’s major gold bazaars. “On Saturday,” said the manager, “there were so many customers it was difficult to get into the store.”

“Chinese buyers’ faith in the yellow metal remains strong,” said a sound bite with the chief economist at one of the country’s “Big Four” banks. That’s the “love trade” in action — the term coined by Vancouver stalwart Frank Holmes to describe Asians’ cultural affinity for gold.

An expert interviewed in the studio said if Cyprus is forced to sell gold to meet the terms of its bailouts, other sickly eurozone countries might have to do the same. “If Italy is asked to sell gold,” he said, “that would be a large amount.”

We sensed the gentleman was trying not to salivate, given China’s drive to build up its own Fort Knox these days.

Meanwhile, “Gold buyers in India, the world’s biggest consumer, are flocking to stores to buy jewelry and coins,” according to Bloomberg.

“My daughter is just six months old, but I think it is never too early to buy gold,” said a housewife named Sharmila Shirodkar. She’d just bought a pair of earrings in Mumbai’s Zaveri Bazaar. “I had been asking my husband every day if prices will go down more. I couldn’t wait anymore.”

“Surging physical demand in India,” said the report, “may help stem the 17% slide in prices this year.”

In Japan, meanwhile, the “fear trade” is on.

“Contrarian, individual Japanese investors understand that gold is a volatile investment,” reads a Reuters dispatch from Tokyo, “but say that buying the precious metal is better than the alternatives.”

“Bank deposits generate virtually zero interest,” Yujiro Yamashita told the news agency. At age 63, he bought $5,000 worth of gold shortly after the bottom started falling out on Friday. It was his first purchase in 20 years.

Yamashita is among a multitude worried “that the new high-octane economic policies of Prime Minister Shinzo Abe, designed to shock the economy out of nearly two decades of deflation, might prompt a collapse in the yen,” says the report.

Back in North America, the “strong buying interest” in physical metal noted by Sprott’s David Franklin in yesterday’s episode is confirmed today by Michigan dealer Patrick Heller.

On Monday, “the further price drop brought out even more eager buyers of precious metals,” Heller writes at Numismaster. “Even though we recently moved to much larger quarters (the size of the showroom quadrupled and we added several phone lines), customers were waiting as long as 30-60 minutes to be served. Many people simply could not get through on the telephone lines because they were jammed with calls.

“Dealers and wholesalers have almost nothing in stock for immediate delivery and premiums are rising across the board.”

Especially on junk silver.“The premium over silver value on $1,000 bags of U.S. 90% silver coin topped 20%,” Heller reports.

If the term is new to you, junk silver consists of circulated pre-1965 silver dimes, quarters and halves. They’re sold in bags of $1,000 face value, or about 715 ounces of pure silver.

“For much of the past decade,” writes Gene Arsenberg at the Got Gold Report, “‘90%’ has traded at ‘par’ or at a small discount to spot silver.” That has changed dramatically since the calendar turned to 2013.

Dave Gonigam

The Daily Reckoning