Chinese Gold Moves Set Stage for Price Spike

It is interesting to hear a senior economic researcher from the Chinese Communist Party calling for bigger gold purchases by China to diversify away from the US dollar, whose devaluation looks inevitable with the printing of money to finance deficits.

This conclusion from Li Lianzhong, head of the party’s policy research office, came in a statement late last week but is only the latest indication of the way the wind is blowing in the People’s Republic.

Golden opportunity

‘Should we buy gold or US Treasuries?’ he asked. ‘The US is printing dollars on a massive scale, and in view of that trend, according to the laws of economics, there is no doubt that the dollar will fall. So gold should be a better choice.’

The same logic underpins recent purchases of commodity assets around the world by Chinese companies, from $1.5 billion for a 45 per cent stake in Singapore Petroleum to the purchase of Swiss oil explorer Addax Petroleum for $7.2 billion last week.

In the past six months, China has also lent $45 billion to Russia, Brazil, Venezuela and Kazakhstan in exchange for long-term crude oil supply deals. Oil is black gold and a hedge against US dollar devaluation.

Where the logic of experts like Mr Lianzhong breaks down is that while China might diversify away from the US dollar gradually, any sudden devaluation of the greenback would badly impair the value of its massive US T-bond holdings.

This then looks a time for the inscrutable Chinese to smile and talk of support for a strong dollar while bailing out of this asset class by the back door. Buying gold, silver and industrial commodity assets are a neat way to achieve this objective.

Price spike imminent?

However, by monetizing gold in this fashion, international investors will surely appreciate that a floor is being put under the gold price, with the prospect of upwards only price revision.

It is exactly this kind of impossible-to-loose investment scenario that produces price spikes, and if you look at the longer-term technical chart for gold, it does look remarkably similar to the Nasdaq in the late 90s before it really took off.

In that case Chinese gold buyers would be well advised to speed up their purchases before they miss the boat on gold prices. Meanwhile, publicity conscious Dubai resident Paris Hilton knows a trend when she sees one, and is due to appear clad only in gold on an upcoming champagne commercial.

Comments

[User 64119:]

very helpful

Jun 28 06:50 AM

[H. E. Canada:]

I have no significant disagreements with most of what you say in this article, except for the chart comparison: "the longer-term technical chart for gold, it does look remarkably similar to the Nasdaq in the late 90s before it really took off."

The fundamentals driving technology companies and the NASDAQ in the 1990s are different than drivers in the precious metals. The long term charts for gold reflect significant non-fundamental issues / events / policies which influenced the NASDAQ in much lesser ways, if at all. An chart example can be found at news.bbc.co.uk/2/hi/bu... courtesy of BBC NEWS.

The implications of your chart comparison also would foreshadow a precipitous fall in gold prices in the not-to-distant future, as the NASDAQ fell between 2000 and 2003 (and has yet to recover). Is that what you intended to say?

If my view is incorrect, please provide charts for reference to your article so I can understand and appreciate your comparison.

Disclosure - I own GLD.

Jun 28 09:35 AM

[Alan Young:]

Paris Hilton boosting gold would be a classic contrarian top indicator.

Jun 28 01:47 PM

[376602:]

Millenium Generation! No, we're holding out for the Business Week Cover with a "Gold Bar", as once featured the "Death of Mining" on the Cover, a Silver Bar with a coffin's handles..


On Jun 28 01:47 PM Alan Young wrote:

> Paris Hilton boosting gold would be a classic contrarian top indicator.

Jun 28 04:45 PM

[5142152-337:]

Peter, Peter, Peter....

Paris Hilton? Your mentioning that ZERO in this venue is unforgiveable. Consider yourself duly reprimanded!

Jun 28 04:50 PM

[Genesis:]

H.E. Canada:

Technical analysis is technical analysis. It's not fundamental analysis. If one chart looks like another chart, that's that. Pure and simple.

Jun 28 09:27 PM

[kohalakid:]

You and I don't agree often, but you're right on the mark with your comment.
Who the heck gives a rat's @#% what Paris Hilton is doing!!!


On Jun 28 04:50 PM 5142152-337 wrote:

> Peter, Peter, Peter....
>
> Paris Hilton? Your mentioning that ZERO in this venue is unforgiveable.
> Consider yourself duly reprimanded!

Jun 29 02:48 PM

[H. E. Canada:]

Genesis - Thank you for your crisp response as to what you know technical analysis "is."

Investopedia explains Technical Analysis
"Technical analysts believe that the historical performance of stocks and markets are indications of future performance."

What Does Technical Analysis Mean?
"A method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity." (www.investopedia.com/t...)

"Other tools" are used by technical analysts, like plotting events in the news, etc, to provide context, as my referenced-BBC chart showed. A chart without context is only half a story.

By the way, did you compare the gold and NAASDAQ charts? Where do they look alike? My gold charts do not look like the NASDAQ's in the late 90s. Do yours? If so, please provide the reference charts the author did not. I'd love to se them and learn from them. Or, did you just take the author's word as true?

You notice the author hasn't bothered to respond to my request to provide charts for reference to the article so I can understand and appreciate his comparison.

Neither did he respond to my question that IF "the longer-term technical chart for gold ... does look remarkably similar to the Nasdaq in the late 90s before it really took off" then does he see a precipitous fall in gold prices in the not-too-distant future, as the NASDAQ fell between 2000 and 2003 which was immediately after the late 90s..

Was this article a technical analysis by the author? I don't think so, so my comments reflected the same sort of other data he spent most of the article discussing, that is, non-technical data, those "other tools."

If this was a technical and not a fundamental artcle, why did he mention all the non-technical data to begin with, and even lead his comparison of the gold and NASDAQ charts with "... by monetizing gold in this fashion, international investors will surely appreciate that a floor is being put under the gold price, with the prospect of upwards only price revision. It is exactly this kind of impossible-to-loose investment scenario that produces price spikes..." How technical vs fundamental is that discussion?

The point I am making is the author used most of the article to discuss non-technical issues and concluded with a technical comparison, with no supporting documentation (charts) accompanying his comparison, and he did not bother to say what happened afer the NASDAQ "really took off" in the late 90s. It cratered in 2000-2003. So what was his point with the comparison? Buy low and sell high? He doesn't need a chart to say that.


On Jun 28 09:27 PM Genesis wrote:

> H.E. Canada:
>
> Technical analysis is technical analysis. It's not fundamental analysis.
> If one chart looks like another chart, that's that. Pure and simple.

Jun 30 01:32 AM