I read an interesting theory on gold investing websites. Allegedly, China is spending its surplus dollar reserves and buying gold. This puts upwards pressure on the price of gold.
Allegedly, every time the FRN-denominated price of gold drops, China's government buys more gold.
This story doesn't seem likely to me. Governments tend to be net sellers of gold. State insiders want gold to be discredited as an investment, making their fiat paper seem attractive by comparison.
If China's politicians are buying gold, that means they're breaking ranks with the other world political leaders. That seems unlikely. Buying gold is a rational economic decision, but that's not the way State insiders behave.
If China's government insiders buy gold every time the price drops, that's effectively a "Beijing put", making gold a less risky investment.
This story sounds like an evil fnord to me. The real reason the price of gold is rising is the devaluation of the dollar. It seems that other sources are always blamed for price inflation, rather than blaming the creation of new money.
It's much easier to say "Gold's FRN-denominated price is rising because China is buying gold!" instead of "Gold's FRN-denominated price is rising due to devaluation of the dollar!"
When complete economic collapse occurs, State paper investments will be worthless. All State paper investments are eroded by inflation. Physical gold and silver is the best way to protect your savings from theft via inflation. Whether you believe the "Beijing Put" story or not, gold is still an excellent investment.
Tuesday, November 10, 2009
The Beijing Put
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4 comments:
You seem to be discounting, here, the possibility that Beijing's appartchiks are acting rationally in terms of sane economics.
Despite official policy, this is not impossible.
Still, I see what you're saying... and to a degree, it is always right.
Search for "FOFOA", and read side links pointing to "ANOTHER" and "FOA".
These point to an alleged "wistleblower" going by "ANOTHER", who crack opened the story to westerners. The story is that the collapse is not far away, and in fact would have already happened if no the desire on the part of Arab and Asian states to use current regime for a bit longer, in order to accumulate more gold bullion.
As it is, they pay mere paper for it. Isn't it ironic, a poetic justice of sorts? I mean that if we say that paper money is everything and bullion is nothing, that it is only a poetic justice that we then will be selling our bullion for the very paper we print.
India just bought 200 tons of gold from the IMF.
China was supposed to get it all. All 403 tons. But, something happened.
Allegedly, India said to U.S. (who is behind the IMF and the UN and BIS for those who believe official proclamations): Sell us 200 tons at our price, or we will bid for that much gold on the open market. Obviously, the deal was forged immediately. The price India paid was a bit less than the market price, and this discrepancy was also pointed out by few observers, calculating India's reserves to be less than announced sum paid for gold. The IMF, of course, couldn't let that be known and so they announced that India did "bid" on the gold amongst other "undisclosed bidders".
China has a next move.
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