China domestic demand could be driver to new commodities supercycle

If you thought Black Friday and Cyber Monday were the peak of overhyped sales frenzy – you ain’t seen nothing yet!  China’s Singles Day – an even more hyped up event from China’s online giant, Alibaba, sees even more conspicuous demand than Black Friday and Cyber Monday rolled together – and all in one day.  The event falls on the 11th day of the 11th month and this year saw sales hit an almost unbelievable US$14.3 billion – up from just over $9 billion a year earlier.  For a country the media tells us is in recession and struggling with its domestic economy – a factor blamed for many of theWest’s current ills, and for the resource sector’s poor performance in particular – this has to be a truly remarkable figure and suggests that whatever may be afflicting the country’s manufacturing and exports sector, domestic demand is running higher than it has ever been – and substantially so.

Do read a couple of my articles published recently on Seeking Alpha about what the Chinese administration is trying to do in terms of a complete reboot of the nation’s economy.  It is turning it from a manufacturing and export driven economy to a consumer and services society, and some sectors, both inside and outside the Middle Kingdom,  are indeed feeling the pain.  The articles are : The Real Facts Behind China’s Economic Restructuring and China’s Singles Day Sales Eclipse Black Friday and Cyber Monday Combined (Click on the article titles to read).

Such a transition cannot be made without cracking a few eggs, but the latest Singles Day sales figures suggest that the country may already be almost there!  With China’s middle classes (where the purchasing power lies) continuing to grow in numbers at a rapid rate, this puchasing power can only but increase – hence the supercycle comment above.  A return to the heady days seen post the 2008 Great Financial Crisis may be just around the corner as China’s domestic conspicuous consumption continues to surge and replace demand for what will be a far more efficient manufacturing sector producing ever higher quality goods.  The new demand thus created will serve to benefit an equally more efficient global resource sector – surely a win-win situation.

And as for gold!  China as a nation has a strong relationship with gold, both as a store of wealth to protect against any future economic woes which may re-occur, but also as a hugely popular element in a society where gifting is an important part of everyday life coming to its peaks at major festivals – and in particular at the Chinese New Year.  Demand as seen from Shanghai Gold Exchange withdrawals is running at huge new record levels this year (it will already have surpassed the 2013 full year record total when the latest SGE weekly withdrawal figures are announced tomorrow, with six weeks to go until the year end).  Even the World Gold Council is seeing an increase in demand coming through, along with record central bank purchases!

The gold price though remains unmoved by all this apparent positive fundamental data, but this cannot, and will  not, go on for ever without a counter reaction setting in sooner or later.  Gold investors will obviously hope it is sooner, and as supply continues to move east surely this crunch point cannot be too far away, although the vested interests in keeping it under control may yet have a few more tricks up their sleeves?

3 thoughts on “China domestic demand could be driver to new commodities supercycle

  1. Yukon bob November 13, 2015 / 5:39 pm

    You need to do more to explain that sensationalist headline.


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