Michael B. Krause

The Case for $1300/Oz Gold

Trade imbalances exist because of the undervalued yuan (and unequal labor cost). You forget one thing: US (and European) demand for Chinese goods will fall dramatically as the imbalances correct, thus the Chinese economy will slow and they will have less buying power. Why buy a Chinese DVD player for $60 (instead of $30) when I can get a higher quality Japanese one for $60?


As long as I've lived, Japan was (and still is) an export economy. The same applies to China with a much larger scale of magnitude. A strong currency will kill their GDP growth.

And then there are crude input costs. If China entirely removed the subsidies on crude (they force their refiners to run at a loss), margins on Chinese businesses would be at further pressure. The stronger currency would help offset this pressure, but at the same time would dramatically reduce demand for their goods from world consumers.