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XMFSinchiruna (27.55)

China plans to buy $80 billion worth of gold

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June 10, 2009 – Comments (12)

This is a Fox Snooze interview with U.S. Representative Kirk from Illinois about the dollar situation, in which he speaks candidly about both China and Geithner's efforts to stave off panic about the deteriorating fundamental outlook for the U.S. dollar.

In the last seconds of the interview, you'll hear Kirk indicate that China plans to buy $80 billion worth of gold in addition to ongoing efforts to expand their strategic petroleum reserve. The whole interview is worth a listen, but the $80 billion gold purchase plan is one of the biggest developments in the fundamental picture for gold since that same country revealed its prior buying to the tune of 1,054 tonnes.

"They funded a second strategic petroleum reserve and they plan to
buy $80 billion worth of gold. That's two Fort Knox's. Both of those
investments only make sense if you expect significant dollar inflation."

12 Comments – Post Your Own

#1) On June 10, 2009 at 11:18 AM, AdirondackFund (< 20) wrote:

Except if you repay the TARP monies.  The money actually has to be in the system for it to be inflationary.  If the Government is lending money, then having it returned, and then lending again, and having it returned, the net effect is zero. 

The Chinese have been suckered here all along.  From lending us money in the first place to now acting to fend off an inflationary wave that will never come.  The issue here is deflation, not inflation.  The deflationary forces are far greater than the Government's ability to counteract them.  This is why Tarp Funds are being lent, repaid, and then re-lent.  This is not inflation.  It is three card monty.  It is also the exactly correct way to handle this.  You want to support the Banks as best you can without causing an even greater problem (inflation) down the road.  The mere fact that the monies are being returned guarantees this. 

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#2) On June 10, 2009 at 11:20 AM, goldminingXpert (29.72) wrote:

I think they're early. It appears that the Fed is pulling liquidity... door #1 of the 2-door scenario I described last week. Door #1 leads to another aggressive round of deleveraging in which anything that isn't a bond gets sold like last fall. Interestingly, it lines up with the traditional summer swoon in metals. I'm a buyer of the precious metals--in August.

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#3) On June 10, 2009 at 11:26 AM, 100ozRound (29.66) wrote:

Fractional Reserve Policies expand the money supply.  Even when the TARP money is repaid, the total lent out adds to the aggregate because of Fractional Reserve Banking.  And on and on and on ad nauseum.

The only way TARP money wouldn't expand the money supply is if they just sat on it.  But you can't tell me that a bank is just going to sit on money.....

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#4) On June 10, 2009 at 11:27 AM, XMFSinchiruna (27.55) wrote:

At this stage, USD inflation is 100% inevitable, and bond markets are forward-looking just as stock markets are. :) As I explained in this article, even a deflationary scenario is dollar-negative / gold-positive at this point:

6. Inflation Looms
Of all the reasons to hold gold, the debate over potential scenarios for the onset of inflation remains the most unnecessary obstacle to understanding gold's outlook. We must not let the inflation debate muddy the waters for gold, since frankly, all scenarios are now supportive of gold. Whether you're convinced we'll see runaway hyperinflation, a deflationary spiral, or stagflation, the direction for gold is unaffected.

Washington has shown its cards, Fools. A deflationary spiral clearly was deemed the most unacceptable consequence of this crisis, resulting in an implied guarantee that further economic contraction would be met by ever-increasing sums of stimulus. In this policy environment, therefore, inflationary forces do not hinge upon economic stabilization. While it's true that recovery could exacerbate inflationary forces as liquidity starts circulating through the economy, inflation can certainly take hold without it … and I believe it will. I view looming inflation as a currency event rather than an economic event, and see stagflation as a likely outcome. No matter which scenario unfolds, though, this environment is ripe for gold.

goldminingXpert

You're attempting to time short-term movements within a very complex set of circumstances ... After all your musings about gold, I'd hate to see you miss out on gold's bit up-surge if it comes before you anticipate. $1,000+ could happen any time ...NOBODY knows precisely when ... the important thing is to be aboard the train when it leaves the station.

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#5) On June 10, 2009 at 11:29 AM, goldminingXpert (29.72) wrote:

I'm not selling my JAG and NXG but I see no reason to get aggressively on board here... a repeat of last fall, which I believe we are about to get... is short-term bearish. Intermediate and long-term gold and esp. silver are going higher.

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#6) On June 10, 2009 at 12:33 PM, ChrisGraley (30.21) wrote:

I'm on the stagflation side as well. With housing still as fragile as it is, I don't see interest rates being raised. We are just entering a third phase of foreclosers where those that have become unemployed in the recession are starting to default. The government can't ignore them and will probably print more money to support that wave as well. They aren't going to raise rates when the foreclosures are still happening. Which means that they are probably buying their own bonds yet again.

I think we are hitting the point of no return on Stagflation. Evidence of the current commodity rise, shows us that inflation is here already. We are in no position to make the proper response and raise interest rates. We'll just keep printing money like we always do and fuel the fire.

I hope people enjoyed the 70's, I'm running out to buy a pair of bell-bottoms right now.

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#7) On June 10, 2009 at 2:55 PM, XMFSinchiruna (27.55) wrote:

The 70s will look downright groovy compared to what looms.

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#8) On June 10, 2009 at 3:07 PM, catoismymotor (32.33) wrote:

Please don't joke about the 1970s. I swear the war in Vietnam and horrible fashion trends fueled the economic fire storm. Avoid bell bottoms, butterfly collars, man bags, avacado green and burnt umber kitchen appliances and the coming disco revival. If we can avoid the eye sores this time we can come out of this twice as fast.

Cato

 

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#9) On June 10, 2009 at 7:16 PM, peachberrytea (72.94) wrote:

Sinch, I looked thru your 10 reasons for holding gold - very informative, thanks.

Question about what you thought about gold valuation tho. I think your writings have given us a very good idea about which direction gold is headed but now my question is, how much? I've heard all sorts of figures ($1650, $3000+) but just wondering on how whoever came up with those numbers get those numbers. What's their process - do they figure out where demand/supply intersect and that's the price, or how exactly does that work??

The reason I ask is I'm considering investing in some gold (perhaps JAG?). The importance of how much gold goes up is so I can do a bit of a comparison, gold vs other assets, natural gas (short run), or oil for example because obviously those probably have a bit of upside too.

Thanks in advance! Sorry if this seems anal or too much detail but I'm a value investor here and so gold prices/valuation matters

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#10) On June 12, 2009 at 1:11 AM, bruinjoe93 (< 20) wrote:

Put your money on the table folks.  If you think inflation is not a problem then short the GLD.  I'm on the other side of the trade.  I got my money on gold mining stocks. By the way, John Paulson is betting on inflation.

 

Track the 10 year bond yield if you don't think inflation is coming.  Rates are rising on long term bonds with or without the Feds intervention. The Fed can manipulate the short term rates but it has less power on the long term rates.

 

 

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#11) On June 12, 2009 at 5:08 PM, peachberrytea (72.94) wrote:

If you think inflation is not a problem then short the GLD.  I'm on the other side of the trade.  I got my money on gold mining stocks. By the way, John Paulson is betting on inflation.

Just because inflation is coming doesn't necessarily mean you buy gold. All inflation means is that gold is likely going to go up. It doesn't tell you how much it's going up, or whether you have other assets that'll go up more than gold (i.e. gold may or may not be a good investment in a relative sense)

I'm not saying gold's a bad investment.. what I'm saying is it may not necessarily be the best investment... with the markets where they are one can argue there are a lot of good investment options out there

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#12) On June 17, 2009 at 12:11 PM, XMFSinchiruna (27.55) wrote:

peachberrytea

I didn;t see your comment until today ... let me get back to you on that one. :)

Gold's going to at least $2,000, though the ultra-conservative might stick with Jim Sinclair's well-calculated $1,650. I think $3,000 might be possible, but I am placing my confidence in $2,000 for now.

 

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