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Gold - China's End Game?

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February 08, 2010 – Comments (8)

I have been pondering China's stance on Gold for awhile. India and Chinese cultures have historically valued gold more than western cultures. But that does not fully explain why the Chinese Central Bank and the Chinese Government's position on Gold, i.e. the fact that they are actively encouraging their citizens to buy it. I linked to a fastastic article back in November that discussed the issue Jeff Clark, Casey Research: How and Why China Will Flood the Gold Market - http://caps.fool.com/Blogs/ViewPost.aspx?bpid=300352. But this article focused on the Central Bank growing its reserves and encoraging the the public to accumulate. But it did not say WHY. Think about it: Why would a central bank, who is purchasing gold, tell the population to do the same? It would increase the purchase price for the central bank (which are net accumulators with a seemingly long term hold horizon, not net sellers).

But I just watched this video. IT IS EXCELLENT!!! Very interesting take. I am not saying it is right, just as the narrator is not saying it is right. But it is certainly plausible and is the best explananation I have yet heard.

Listen to the whole video, it is well worth your time

http://www.brasschecktv.com/page/800.html.

8 Comments – Post Your Own

#1) On February 08, 2010 at 3:56 PM, outoffocus (23.25) wrote:

So China may want reserve currency status.  Makes perfect sense. I think anyone who believes that the USD is infallible is a fool. 

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#2) On February 08, 2010 at 4:12 PM, binve (< 20) wrote:

Hey outoffocus, I think anyone who believes that the USD is infallible is a fool. I couldn't agree more.

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#3) On February 08, 2010 at 4:54 PM, Tastylunch (29.39) wrote:

aren't those the same guys who claim 9/11 was an inside job and other similiar conspiracy theories?

not sure I'd trust them too much...

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#4) On February 08, 2010 at 4:58 PM, binve (< 20) wrote:

Tastylunch,

Hey man, I have no idea. I have never seen that site before and followed a link on Jesse's site.

So I listened to the message without any preconceptions and the logic makes a lot of sense to me. Like I said, the situation with the Chinese government telling the population to buy gold never had a satisfactory explanation, but this is one that makes a lot of sense.

So I do not trust the site one way or the other. I have no opinion on it whatsoever.

But the message in the video makes sense to me, or is at least plausible, which is what I say above..

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#5) On February 08, 2010 at 10:48 PM, biotechmgr (35.59) wrote:

Very thought provoking. Seems a plausible notion. After all, there is growing competition from China as a superpower and want to sustain their economy in a lasting way. Real money in the next economic wave may be a return to hard currency.

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#6) On February 08, 2010 at 11:33 PM, uclayoda87 (29.34) wrote:

Conspiracy Theory or Mission Impossible

An old blog of mine from Feb 2009.

I obviously underestimated China's game playing ability and so did the US.

China must feel that they are destined to take over the financial world, with the euro's problems raising the US dollar index and depressing commodity prices.

Now they can take their time in the purchase of the world's gold supply.  If the US dollar's strength fades as we come closer to the mid-term elections, the gold bull run will resume with gold reaching $1500 to $2000 by year's end.  This prediction is based not on some magical belief in the yellow medal, but on the pattern of reckless spending that accompanies a major domestic crisis, such as an election year.

 

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#7) On February 09, 2010 at 9:19 AM, binve (< 20) wrote:

biotechmgr,

Exactly. And like I say above, it is just speculation, but it is a plausible speculation.

Think about it, the economic strength of a nation is built of the savings of its citizens. In the 1940s during WWII, the government was running massive defecits. But who was buying the debt? Not the Fed. Nope. It was US citizens. Americans had savings and we backing the government. Which meant after war time, there was a lot of capital from private savings that could be turned into the biggest productive revolution seen on the planet.

This is where Americas bull run truly originated from.

China, if this theory is correct, would be looking to do a similar thing in a surprisingly similar way, except doing it in hard currency versus government debt. Igenious if it plays out that way.

uclayoda87,

Hey man! Nice post man! Yep, it is very interesting to see projections from a year ago start to play out. It is also very interesting that I hold gold not because it could be an official currency of a major economy at some point in future. I hold it because it is still an (unoffical) currency now. It is sound money and I think it will hold its value relative to US Dollars. With an idea like this (China backing its money supply with physical gold) or perhaps the IMF using gold in part to back SDRs, certainly adds to gold's potetnial move up. I think either of these are many years off, and so I am not 'banking' on them happening.

But gold is sound money in an unsound fiat money world. And it is no surprise that major Eastern Central Banks are gravitating toward it.

Thanks!..

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#8) On February 22, 2010 at 3:15 AM, uclayoda87 (29.34) wrote:

VIEW FROM HONG KONG

WSJ Asia


FEBRUARY 20, 2010


Hong Kong Prepares for a Yuan World

Just preparing for the Yuan to become the next world reserve currency.

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