I recently received the following comment on my post china-implores-its-citizens-to-buy-gold: "Couldn't disagree more with your gold position. The west is going through a long deleveraging process, and this will have a deflationary bias."
Lets jump right into that comment:
First, I wholeheartedly agree with you that the US will be going through an arduous deleveraging period: easy credit and low interest rates created an untenable situation which will slowly be unwound (A great book on this is "The Age of Deleveraging," by Gary Shilling).
That said, it is not inflation or deflation that is driving the price of gold. The price of Gold is being driven higher by unabashed currency depreciation. The central banks around the world have been scrambling to fill the void in consumer demand (employee demand/housing demand/bond demand) , by printing dollars, and every new dollar printed, is one further step fiat money is taking towards oblivion. Whether or not these dollars succeed in combating deflation, at this time, is besides the point (in many cases the excesses were just too great).
So long as central banks continue to monetize debt, and leave interest rates low, the price of gold will rise. In other words so long as Ben Bernanke has free control of the Federal Reserve there is no ceiling to the price of gold.
Showing posts with label Gold. Show all posts
Showing posts with label Gold. Show all posts
Thursday, December 2, 2010
Tuesday, November 30, 2010
China Implores its Citizens to Buy Gold
Below is an excerpt from the Market Watch article "China approves Gold Fund of Funds" (http://www.marketwatch.com/story/china-approves-gold-fund-of-funds-2010-11-30):
"China’s securities regulators have given the go ahead for a mutual fund to invest in foreign exchange-traded gold funds, potentially tapping interest among mainland China investors who face negative real interest rates on their bank deposits and want to hedge against inflation."
...
Allowing Chinese investors access to foreign Gold ETFs is but one more way that China is encouraging its citizens to buy Gold.
I believe China is pushing its people towards Gold in an attempt to protect their buying power without undermining their export potential. After all, China's embrace of a weak currency policy, by linking the Yuan to the Dollar, is positive for Chinese exports, but dangerous for a Chinese economy that is becoming increasingly consumer driven. I believe China reasons, and rightly so, that if Chinese citizens keep their savings in Gold, China will be able to leave the Yuan's peg to the dollar in place for longer, without fear of destroying the Chinese people's purchasing power.
In any event, whatever China's impetus for stimulating Gold demand, news of this nature is very bullish for Gold. If you dont have a position in Gold, I would highly recommend taking one now.
"China’s securities regulators have given the go ahead for a mutual fund to invest in foreign exchange-traded gold funds, potentially tapping interest among mainland China investors who face negative real interest rates on their bank deposits and want to hedge against inflation."
...
Allowing Chinese investors access to foreign Gold ETFs is but one more way that China is encouraging its citizens to buy Gold.
I believe China is pushing its people towards Gold in an attempt to protect their buying power without undermining their export potential. After all, China's embrace of a weak currency policy, by linking the Yuan to the Dollar, is positive for Chinese exports, but dangerous for a Chinese economy that is becoming increasingly consumer driven. I believe China reasons, and rightly so, that if Chinese citizens keep their savings in Gold, China will be able to leave the Yuan's peg to the dollar in place for longer, without fear of destroying the Chinese people's purchasing power.
In any event, whatever China's impetus for stimulating Gold demand, news of this nature is very bullish for Gold. If you dont have a position in Gold, I would highly recommend taking one now.
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