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Albert Sung is the author of the Katchum Macro-Economic Blog, monitoring breaking economic news from a day to day basis. He started investing in 2008 because of the economic crisis and holds a masters degree in chemical engineering. Previously, he worked several years as a process engineer at... More
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  • End Of Chinese Commodity Financing Deals Sends Gold Prices Higher 1 comment
    Mar 28, 2014 3:12 AM | about stocks: GLD

    Just wanted to point to an article that documents the very complex theory of Chinese Commodity Financing Deals (CCFD), which started in 2012.

    Basically, China manipulated the paper price of gold down to create excessive physical gold demand we saw in 2013. China is the culprit and it's my job to get this out in the media. This is the only reason how gold prices didn't go up while physical gold demand was up. You would think when China unwinds, won't this excessive physical demand slow down and send prices lower? The article apparently says that prices will go lower for copper and other commodities, but not for gold.

    (click to enlarge)

    So, when China collapses and needs to unwind all of these trades, they will have to buy the paper price again which will send gold higher, back to the 2012 level. The opposite happens with the copper price, which will go lower.

    Another very important conclusion is, when China collapses, then China won't be able to do these CCFD's anymore, which will mean that gold manipulation will end (at least from China's perspective). This could be bullish for gold as I pointed out already in another post: "When China Implodes, This Might Be Bullish For Gold".

    I'm just summarizing that article, it's too complex for me to understand for now.

    Now what's more important to us is: "How do we spot the unwinding of China?". Obviously, the unwind will mean that the yuan collapses, so we look at the forex market.

    You can see the collapse starting in 2014. And lo and behold, which commodity soared in 2014? Gold. Which commodity collapsed? Copper.

    And with our correlation between trade and currency in mind, we know that when a currency collapses, the trade numbers will go from surplus to deficit, which means imports are higher than exports. So we also need to monitor the trade numbers of China.

    (click to enlarge)

    Goldman Sachs says this unwinding will have a time frame of 24 months.

    Stocks: GLD
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  • phdinsuntanning
    , contributor
    Comments (1357) | Send Message
    one year ago they recommended to buy gold,
    now they say it will go down,
    so if you multiply their theory
    x-1 you will be all right.
    Gold was down last year because of India controls
    that created panic in GLD investors.
    Chinese ladies got a lot of jewelry,
    no more gold scrap at lower prices,
    tiny mine supply, so now it depends on demand.
    28 Mar 2014, 03:14 PM Reply Like
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