Systemic risk in China a reason to buy gold

Gold (GLD +0.3%) isn't moving much on this risk-off day, but Newedge's Robbert van Batenburg thinks the Chinese jitters which may be contributing to today's selloff could accelerate in the coming weeks.

"Chinese authorities have initiated a number of measures to reign in the froth in the domestic credit markets and speculative capital," he says, taking note of banking regulators requesting inventories of subprime loans and derivative positions, and today's story of Chinese banks cutting lending to industrial firms by up to 20%.

"The 2008 financial crisis has taught us that excessive leverage has to potential to create systemic risks if a virtuous credit cycle turns vicious. If these problems in China escalate, a flight in gold and Treasuries is likely to ensue."


From other sites
Comments (16)
  • David at Imperial Beach
    , contributor
    Comments (4381) | Send Message
    Chinese economic troubles send the yuan lower, which in turn raises the price of gold for Chinese buyers. So China's problems are a negative for Chinese gold buyers, who are attracted to bargain gold. Western buyers appear to be taking up the slack, however, so we end up with a moderate increase of .38% (gold spot) overall.
    13 Mar 2014, 03:54 PM Reply Like
  • filipo
    , contributor
    Comments (4680) | Send Message
    Although the Chinese don't set the gold price for now, they certainly are the largest buyers of physical gold and in that sense they deserve to have a voice in the fixing of the gold price.
    In that regard the gold market does not render real proportians and should be called "rigged".
    The actual system favors those who want to buy cheap and unfavors those want to sell their gold and get good money for it. This is highly unfair and ought to change.
    The largest holders of gold, the East, should have a voice in the fixing of the gold price.
    13 Mar 2014, 03:54 PM Reply Like
  • Doug Eberhardt
    , contributor
    Comments (4966) | Send Message
    Hi all...been a fun ride up off the December lows.


    My latest (not submitted to Seeking Alpha):


    We Are Not Off to the Races Yet With Gold

    13 Mar 2014, 04:05 PM Reply Like
  • filipo
    , contributor
    Comments (4680) | Send Message
    Hi Doug,
    Tremendous blog you have there.
    Excellent article too: sums it all up.
    13 Mar 2014, 04:22 PM Reply Like
  • Doug Eberhardt
    , contributor
    Comments (4966) | Send Message
    Thanks filipo...I follow your comments (and most of the others here on SA) even though I haven't responded much. Busy writing!


    If I submitted that article to SA, they would throw it back at me saying I don't make any specific stock or ETF recommendations. Funny, but most people who write about gold realize that you don't have to mention gold as a buy or sell to write about it. That's what they don't get...but use as an excuse to deny what I write. I get tired of them as each time they deny, it throws off the timing of what I write since their approval process is so long in reconsidering after I change a few things to satisfy their editors.


    I have documented everything from before they even had a "Gold and Precious Metals" category. Not sure what I will do with it yet, if anything. I do enjoy writing and am sure I would have more of a following if allowed to write freely. It's not like I don't bring anything to the table.
    13 Mar 2014, 04:48 PM Reply Like
  • John Leszar
    , contributor
    Comments (300) | Send Message
    I agree: Great article.
    13 Mar 2014, 11:28 PM Reply Like
  • Doug Eberhardt
    , contributor
    Comments (4966) | Send Message
    Thanks John...


    Now I just hope my website doesn't implode. Having problems with my wordpress theme.


    Any experts out there?
    14 Mar 2014, 12:54 AM Reply Like
  • boldaq
    , contributor
    Comments (97) | Send Message
    We've mortgaged the whole country to China. If China starts calling in their markers, what will happen then?
    13 Mar 2014, 05:01 PM Reply Like
  • Doug Eberhardt
    , contributor
    Comments (4966) | Send Message
    China won't cut one of the major hands that feeds them. They will wait a century or longer (read Sun Tzu) for us to implode on our own and dictate everything. But they have their own major issues right now.


    You don't hear anyone in Congress yelling at the Chinese for currency manipulation, right?
    13 Mar 2014, 05:33 PM Reply Like
  • Hendershott
    , contributor
    Comments (1891) | Send Message
    I don't get the connection. Why buy gold because the Chinese economy is slowing?
    13 Mar 2014, 08:32 PM Reply Like
  • King Rat
    , contributor
    Comments (1902) | Send Message
    I agree the connection should be, "slowing economy = reduced consumer demand" but perhaps the scenario is "slowing economy = competition to devalue currency".


    Gold bugs and anti-gold bugs both have it wrong. Gold will not get you rich, but it will maintain its value over the long haul vs the price of food and housing. By long haul I mean 100 year period. Having a little is not a bad thing, and perhaps many Chinese investors who wouldn't materially be affected by a downturn would like to have a little before the yuan depreciates.
    13 Mar 2014, 08:42 PM Reply Like
  • Edit or perish
    , contributor
    Comments (403) | Send Message
    "Chinese authorities have initiated a number of measures to reign in the froth"


    It's rein in, not reign in or rain in.
    13 Mar 2014, 09:31 PM Reply Like
  • harkvasa
    , contributor
    Comments (99) | Send Message
    Gold should rise to $1550 to $1800 range during the next 6 months.
    Supply has been reduced as the cost of getting Gold has increased closure to $1200 at many Gold mines.
    13 Mar 2014, 10:48 PM Reply Like
  • 6151621
    , contributor
    Comments (1172) | Send Message
    I think the "today's sell off" is referring to the us equity indices? Gold not so bad today, another example of SA showing their bias? We all have them. Equities have yet to accelerate down so no clear worries there yet. Will gold test 1434? We'll find out soon enough.
    13 Mar 2014, 11:49 PM Reply Like
  • ddearborn
    , contributor
    Comments (201) | Send Message


    I have to disagree with you. IMHO the reason to buy gold is due to the looming Systemic risk that the US economy is facing not the Chinese economy. The Chinese economy is by any conventional measure the strongest, most robust in the world. And in all likelihood China today is the worlds largest gold holder. Even if you assume the FED and the US Treasury have all the gold they claim (odds are about 10 to 1 against) At the rate that China has been buying gold for the last 5 years they have eclipsed the US in holdings. The Chinese Yuan is a far stronger currency than the US dollar. And in short order will replace the dollar unless the ruling elite can sneek a new world currency in first. Buy gold to protect against the massive inflationary pressure that the 30+ trillion printing spree of Helicopter Ben over the last decade has wrought. Buy gold as a hedge against the very real possibility of world war. Buy gold because it consistently beat the markets. Buy gold because it is an actual tangible asset that once in your possession cannot be stolen by the crooked banks, Wall street and illegal laws their bought and paid for politicians keep writing. (no one is going to turn in their gold if the US government tries to confiscate it again) Buy gold because it is finite and none renewable. Buy gold because the ruling elite have been buying by the pound for years. Buy gold now because it is an incredibly undervalued investment . Without the direct and illegal secret manipulations of the FED and various State Banks and investment houses gold would already be nearly triple what it is now. And sooner or later it will get there. But buy gold because of a risk that the Chinese economy is going to fail? The reality is just the opposite.
    14 Mar 2014, 12:36 AM Reply Like
  • filipo
    , contributor
    Comments (4680) | Send Message
    "But buy gold because of a risk that the Chinese economy is going to fail? The reality is just the opposite."


    Well, for the Chinese it might be a good reason to buy gold.
    A falling Chinese economy would translate into a plunging Yuan and high inflation.
    And if for them it's a good reason, for us it might make sense too, ain't that logic ?
    Because if the Chinese buy, prices go up ?
    14 Mar 2014, 02:23 AM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Screener: Search and filter by asset class, strategy, theme, performance, yield, and much more
ETF Performance: View ETF performance across key asset classes and investing themes
ETF Investing Guide: Learn how to build and manage a well-diversified, low cost ETF portfolio
ETF Selector: An explanation of how to select and use ETFs