THE CHINESE DIG FOR GOLD!!

BY WALT DURHAM

Gold has made a good rally this year as it is up 27% in the past 12 months  surpassing the important psychological level of $1,000 per ounce. Now, there are many factors pushing gold to these levels, but would you believe me if I told you that China was playing an important role? 

Up until around 2002 or so it was illegal to privately own gold in China. You actually could be thrown in jail if caught with gold in your possession and now the Chinese government is actually pushing it's citizens to buy gold as they have lifted all restrictions on owning gold. But why? Well, China uses the US Dollar as a reserve currency, or should I say used to, because now it appears that China is de-investing the dollar. The Chinese are afraid of the devaluation of the dollar, like many Americans already are. Over the past couple of months Beijing has made several moves to help protect themselves against this, and many Chinese leaders have voiced there opinion about a new reserve currency to replace "Washington Wallpaper".  To put this into perspective China was recently the lowest per-capita consumer of gold in the world, and now they are taking steps toward become the largest. As far back as I can remember India has always been the largest per-capita consumer of gold. Ah, but the times they are a changing.

Okay I can already hear some of you saying " Wait a minute, China doesn't want to de-invest the dollar, their economy depends on us. Right?" Wrong!!!! China's economy is becoming more and more independent and no longer solely relies on us to by their goods. China, like other large gold believers see that the massive amounts of money being printed in the US is a bad thing for the dollar. It is no longer a question of if we will see inflation but it is a matter of when. Inflation is coming no matter how you look at it. Bottom line is, we can't just fire up the printing presses every time  the economy goes down hill and expect not to see any backlash from it.

So how is China going to affect the price of gold? Well, China is introducing millions upon millions of gold consumers to the market, and gold doesn't seem to just fall out of the sky. Point blank, increase in demand with the same supply equals higher prices, you know the gig. Right now China is buying mining assets and gold bullion, rumors suggest they have taken in around 14 million ounces of gold as of late, and that kind of move suggest that they found their new reserve currency. In my opinion gold is a no lose game that you can't afford not to play.