And Why Cash4Gold Should Be Afraid…Very Afraid…
Move over Cash4Gold, there’s a new spokesperson for retail gold investing…and their name is The People’s Republic.
According to a recent article on Mineweb, China’s largest (state-owned) TV company is now running “Cash4Gold” –style ads, marketing the wonders of gold to retail investors. Only they’re not trying to buy your “old” and “broken” gold…they’re trying to sell you more…
It’s only been about three years since the PRC began relaxing rules on individual citizens owning gold, but the yellow metal’s already got a die-hard following in Red China – home to some 20% of the world’s total population. Several of our preferred coin dealers have looked on firsthand as China’s coin market exploded recently…showing just how interested the diligent savers of China are in preserving their wealth.
But that’s not enough for the PRC.
No, dear friend. These guys are obviously nervous. I would be too if I had Uncle Sam on the hook for a few trillion dollars. I guess it goes back to what John Paul Getty said… “if you owe the bank a hundred dollars, that’s your problem. If you owe the bank a hundred million dollars, it’s the bank’s problem.”
So if Unky Sam keeps printing; and we see mad inflation, then China gets repaid in dollars that are worth a fraction of the ones they loaned out years prior. If deflation doesn’t let go, we could see a sovereign default or some other “black swan” event before this is all over.
Imagine China receiving a printing press in the mail… c/o The US Treasury, with a little note that said, “we’re just printing money to pay our debts these days, so we figured you should have one of these.” That’s the kind of nightmare that’s got Chinese officials waking up in a cold sweat these days.
Hence the copper…the rare earth minerals…the push to build up domestic gold mining (they’re currently #1 in the world this decade for mining). And the Special Drawing Rights. Those “SDR’s” …the currency basket that allegedly helps China get out of the dollar. It’s a bit problematic, but it’s a big move psychologically.
And what happened this week when China announced the first round of SDR buying?
Gold Jumps $25 As China Starts to “Walk the Walk”
We saw a relatively quick, $25 pop in the spot market. Sounds like a number of investors and major players had to adjust their outlook after that news bulletin.
But in the longer-term – as we approach September – we’re seeing something that could very well be the break that pushes gold into the quadruple digits. Just take a look to your left…
What you’re seeing here is gold ceasing to test its moving average; something that means we’re in for a quick upward shift. China’s new gold marketing campaign – and other anecdotal indicators of uncertainty and a lack of faith in existing and future credit markets – seem to suggest the market dynamics are already working in gold’s favor.
And a number of other key technicals are pointing in the same direction. The “Golden Ratio” for example (SPX/Gold) pulled back above one recently, for the first time in months. A correction in stocks – and a corresponding correction in investor sentiment – could be more than enough to give gold the extra support it needs to hit $1,000.
Why be so hung up on $1,000?
It’s a major psychological barrier; unlike the difference between, say, $742 and $751. It’s four digits, folks! What does it say about the financial world when gold’s gone from ~US$250 to about ~US$1,000 in a single decade? Most importantly; what does it say about the future prospects of that economy?
De Omnibus Dubitandum
Matthew Collins, A-Letter Editor
Source: Sovereign Society