It seems that the Chinese have stopped exporting gold and started to encourage their citizens to buy silver and gold. One theory is that China would like to have their currency, the Yuan, be the world’s reserve currency of choice, and that they believe that they can use internal consumer demand to continue their economic growth. Currently, the world’s reserve currency of choice is the United States Dollar.
This would seem like a dramatic change since other world economies and governments have expressed concern that China has been doing all that it can to devalue the Yuan.
Many of the world’s richest people were people who predicted bubbles. Like the people who shorted the market in 1929, 1987, and 2000. Or George Soros, who predicted the collapse of the British Pound. Or the people who shorted real estate in 2006.
What if the Chinese have found a gold vein in the Himalayas, let’s say, that would increase the world’s gold supply by 400%. What if they are encouraging their citizens (all one billion of them) to buy gold, and they have stopped exporting gold because they want to create a false shortage. Commodities investors, retirement plans, everyone and their grandmother jumps in to get rich in the latest bubble: gold. The Chinese government then buys all of the shorts and puts that it can afford and subsequently floods the world’s commodities markets with gold?
People seem to loudly express their grievances about how our currency is no longer tied to gold. That a switch to fiat money will be too tempting for world governments in the face of uncontrollable spending. This is a valid concern, I am sure, but is gold overrated? It is, after all, only a metal.
IRO,
Very interesting post…I also saw this article on Kitco today…Even though the headline of the article seems bullish once you read deeper into the article has some interesting points of view from professional commodity traders…
Now, technical considerations might be limiting gold’s upside in the short term in a market that is “tremendously overbought,” Gross said. “We think there is such a long position in gold right now that it may have a hard time trading substantially higher before it’s had a little correction first,” he said. Still, he also looks for gold to eventually hit $1,300, especially if the dollar weakens further on additional quantitative easing
So when we actually got the announcement that they weren’t doing it now but could in the future, it’s pretty much what everybody expected them to say,” Gross said. “So I don’t think it’s a big bullish surprise for gold by any means. It looks like we got a little lift from it because the dollar is falling more sharply than a lot of people expected it would
I think the main argument isnt whether gold will move higher or not…Its more of the fact that its move is closer to the 8th inning rather than the 3rd inning…If and when the correction comes in Gold it will be brutal…When metals pullback its like an avalanche…It may go higher here but the risk is much higher…From a techinician’s standpoint its extremely toppy…
I don’t know when the article was written, but the argument that the dollar weakened isn’t really true. Interest rates on existing federal debt have continued to decline over the past few months. Increasing interest rates would indicate weakened demand and diminished value of current debt. If the dollar was in an inflationary environment we would be seeing interest rates rising. Another point of note was the fact the Fed came out and stated today that quantitative easing could be reinvigorated going forward. Thus, pushing even more dollars into the market in the future and yet interest rates still fell today. What does this say about future expectations and the value of a dollar against other world currencies?
I think gold is an old school investment and the recent uptrend in gold is temporary and nostalgic. I also agree gold in top heavy and that there is irrational over exuberance towards the investment. Once we get any kind of real inclination that world wide economics are improving gold will be back at 600 an ounce within the same time period of the present run up. Treasury yields will do the same and the yield curve will become steeper due to future expectations of interest rates.
There has to be gold in China. There is gold just about every where. The only limitation is the cost of extracting it.
There is more gold poised to come on the market. There is a great deal of gold in Chile and the mines are just being opened now. Although, since Chile supports herself with copper, she already has a good understanding of market demand and of not flooding the market.
I don't know when the article was written, but the argument that the dollar weakened isn't really true. Interest rates on existing federal debt have continued to decline over the past few months. Increasing interest rates would indicate weakened demand and diminished value of current debt. If the dollar was in an inflationary environment we would be seeing interest rates rising. Another point of note was the fact the Fed came out and stated today that quantitative easing could be reinvigorated going forward. Thus, pushing even more dollars into the market in the future and yet interest rates still fell today. What does this say about future expectations and the value of a dollar against other world currencies?