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physical gold from Western capital markets. They assume that governments know what they are doing, so there is a bigger game afoot of which we are unaware. The truth of the matter, though, is simply that China and Western capital markets view gold very differently. Let me explain.So says Alasdair Macleod (goldmoney.com) in edited excerpts from his original article* entitled Why the West sells gold and China buys it.
[The following is presented by Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com and www.munKNEE.com and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Macleod goes on to say in further edited excerpts:
You will hardly find anyone in the London Bullion Market who regards gold as money; and for them if gold is no longer money Chinese demand for it is not a monetary issue. Instead it threatens the bullion banks’ business that a useful financial asset, capable of earning many times its physical value in fees, commissions, turns and interest, is being leeched out of the market by Chinese aunties.
It is clear that nearly all Western central bankers share the above view, believing that gold will never play a monetary role again. We also know that Marxist-educated government advisers in China have been sheltered from the Keynesians’ antipathy against gold and instead have been brought up on Marx’s belief that Western capitalism will eventually destroy itself. It therefore follows they believe that western paper currencies will probably be destroyed as well.
We can only speculate otherwise, but the following conclusions about why the Chinese are accumulating gold seem to make most sense:
- There is a fundamental view in China that gold is ultimately money, so it is always worth accumulating by selling potentially worthless foreign currency.
- Encouraging her citizens to accumulate gold achieves two objectives: if they have real wealth to protect it makes them potentially less rebellious in difficult times; and secondly private buying of gold reduces the trade surplus, which in turn reduces the accumulation of foreign currency reserves.
- Gold is generally accepted as superior money throughout Asia, which is China’s long-term regional interest.
- The Chinese Government (and/or the Communist Party) is buying gold for itself. Assumptions it will use gold to beef up the renminbi makes little practical sense, beyond perhaps some window-dressing for currency credibility. Instead she appears to be accumulating gold for unstated strategic reasons.
- Keeping the West short of gold gives China huge leverage in today’s cold currency war, and even more if the currency war heats up.
The idea that America is colluding with China in the gold market must therefore be nonsense. The truth has everything to do with different philosophies about gold.
- Advanced western economies have survived without using gold as money for a considerable time.
- Currency and credit inflation have created a modern finance industry wholly dependent on fiat paper and everyone in mainstream finance is conditioned to believe in the profitable world of fiat currencies.
- They are therefore predisposed to dismiss gold as never being money again.
That is why the West is less worried about losing physical gold than it should be, and China is glad of the opportunity to buy it – and she can be expected to continue to do so whatever the price, because she knows that in the final analysis – gold is the only true money.
[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
*http://www.goldmoney.com/research/research-archive/why-the-west-sells-gold-and-china-buys-it
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(The articles posted on munKNEE.com deliberately present a diverse perspective on subjects discussed. Below are links, with introductory paragraphs, to a variety of related articles designed to help you become truly informed regarding both sides of the issues so that you can assess the merits of all points of view and come to your own conclusion.)
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2. Noonan: “Gold” War Has Replaced Cold War in China/Russia vs. U.S. Struggle for Economic Dominance
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3. China Converting U.S. Dollar Debt Holdings Into Gold At Accelerating Rate
China, Russia and other nations are exiting their dollar-denominated holdings in favor of gold. This action should put pressure on the dollar and U.S. treasuries, pushing not only central banks, but mainstream investors towards the safety of precious metals and other tangible assets that cannot be defaulted on. There will be a rush out of dollars and into assets with no counter-party risk, it is just a matter of how soon it happens. Read More »
Most Americans simply don’t understand that Russia and China have the power to collapse the U.S. economy by going to a gold for oil system. All they have to do is pull the trigger. Let me explain. Words: 1515 Read More »
5. China Continues Buying Gold Like There Was No Tomorrow! Here Are the Impressive Numbers
China continues to buy gold with both hands, keeping up all the gold they produce and importing even more! Imports were up 50% in October vs. the previous month; up 68% in November and up 74% in December. What will January bring given the continued weakness in the price of gold? Probably even more buying! Read More »
6. China’s Role in the Future of Gold
In this infographic we look at how gold growth in China will impact the future of the precious metal. In Q4 of 2011 and continuing into 2012, China has bought more gold overall than even India and will continue to play an important role in consumption. Read More »
7. Gold Reserves: Who Are the 10 Biggest Owners – and How Soon Might China Become #1?
China currently is a distant 5th behind the U.S. in the extent of gold reserves it currently owns but gives every indication that it is intent on adding more. How long might it take for China to be number one in gold reserves? Read More »
Tip of the hat to Alasdair Macleod for listing Nu Yu’s MarketSectorTA…
I see our current fiscal situation as nothing more than our money handlers making a bet, the West thinks that they can profit more using flat money while the Chinese (and others) know that sooner or later, for one reason or another, Gold, Silver and other PM’s will once again be in demand globally, and when that times comes the value of all PM will skyrocket, as compared to what it is being traded at today.
If what I said makes sense to you, what percentage of PM should your portfolio contain?