By: John Fisher
The big money and smart money is in China – the world’s largest creditor nation. What do they know that we don’t?
The Wall Street Journal reports December 3rd, 2010 that gold prices are soaring to record highs as a new powerful factor has emerged as a driver of that rally – China.
According to the Journal, China is now buying huge amounts of gold fearing inflation as the Federal Reserve begins a new set of quantitative easing policies, and rightfully so.
The paper’s report – “China Buys In to Gold’s Allure” – cites key data released by China’s state-run Xinhua news agency showing that China imported 209.7 metric tons of gold in the first 10 months of this year. That’s a 500% increase compared to the same period in 2009.
China’s dramatic move into the precious metals market gives weight to rumors that Beijing fears massive dollar devaluation. Gold is considered a store of value during periods of currency depreciation and economic instability.
“The trend is undeniable, gold demand in China is rising rapidly,” Walter de Wet, Standard Bank head of commodity strategy, told The Wall Street Journal.
How are they paying for this gold? With the dollars we sent them to buy ‘Made in China’ merchandise! Who’s getting the better end of this deal? Our dollars for merchandise become their dollars for gold. Hmmmmm?
All Things Considered – John’s Commentary
Action to take: Do what China is doing – hedge your bet against the dollar denominated assets you own – most especially cash, equities, debt and real estate. Have 10 to 20 percent or more, depending on your tolerance, in physical precious metals. Note: The Chinese are buying physical metal, not a paper proxy.
What to buy: Right now, the Gold:Silver ratio favors gold slightly over silver. Long term, silver will still outperform gold by a factor of three. In silver, the best buy by far is 90% coin. In gold, I just purchased (80) US Postal Arts Medallions at the lowest price I have ever paid.
Quote of the day:: “There can be no other criterion, no other standard than gold. Yes, gold which never changes, which can be shaped into ingots, bars, coins, which has no nationality and which is eternally and universally accepted as the unalterable fiduciary value par excellence.” – Charles De Gaulle
