Wednesday, March 14, 2012

How China will shake the gold market in 2012? By Shan Saeed

How China will shake the gold markets in 2012 By Shan Saeed

This is quite obvious for many gold investors. Right now, the Chinese government is reinventing both their own internal gold markets and also the international gold markets as well.

Here's what I mean... For decades, Chinese citizens were barred from owning physical gold under penalty of imprisonment. That lasted until 2002. Then, in September 2009, China became the only country in the world that I know of to actively promote gold ownership to its citizens.

In fact, the government started a major campaign to encourage all citizens to buy gold. Chinese government reportedly informed her citizen to hold 25 to 30% of their asset portfolio in Gold and Silver. Locals can now buy gold bars, which come in four sizes, at ANY Chinese bank in the entire country. If you don't think that's unusual, try buying gold at ANY bank in the United States, and watch the funny look you get from the teller.

The government has also set up thousands of gold "stores" around the country, which look like jewelry stores, but instead sell bars of gold.

As Forbes recently reported at the scene of one such gold store:

"The crowds surge shoulder to shoulder... It's one dramatic example of the gold craze in China, which is officially and unofficially promoted by the Communist government."

My friend recently visited one of these Chinese gold stores on a recent trip, and said:
"On the inside, these gold stores look like jewelry shops–armed guards, glass viewing cases, etc. But instead of diamond crusted earrings and white star sapphires, you see bars. Lots of bars. The government mints bars in sizes ranging from 5 grams to 1 kilogram. The prices are updated instantly ... and the bars are all serialized and .9999 purity, the same as you would get from Switzerland. He went into several stores and saw Chinese people buying like crazy... all with cash... the inventory was flying off the shelf."
Why would the Chinese government do this?

Well, China wants to control the world's gold markets. And if they can get Chinese citizens to purchase large amounts of gold in the coming years, it gives the government the potential for easy access to several hundred more tons. I am super bullish on Gold. The Chinese government could ask their citizens to sell all the gold to the government, or could even confiscate it if necessary.

You see, just like the United States, the Chinese government has a history of telling citizens how much gold they could own, and at what price.

Here's a famous photograph from a 1949 issue of Life Magazine, of Chinese citizens rushing to exchange currency for gold. In an effort to promote confidence in their currency, the government offered citizens the chance to exchange currency for gold at a rate better than could be found on the black market, but had to quit the offer after just 21 hours because of the hysteria that ensued.


The point is, the Chinese government has turned their population into gold-crazed investors and savers.

And they've taken further steps too.

For example, recently, the Chinese made available the first yuan-denominated spot gold contract, called the Renminbi Kilobar Gold. As Dow Jones Marketwatchreports that analysts see it as "a step toward making the yuan a global reserve currency."

But here's the thing...

Both of the developments I just mentioned may, at the end of the day, pale in comparison to the big move coming up later this year...

In June 2012, China has announced plans to open something called the Pan Asia Gold Exchange (PAGE). This is basically a direct competitor to the London Metals Exchange and the COMEX in New York.

The way things work right now, the futures market in London "fixes" the spot price of gold each morning and afternoon, based on trading in London and on America's COMEX market.

But both of these markets back gold contracts with only 10% of the actual metal. The new China PAGE market could have a much larger gold backing, and could forever change the way gold is traded.

As James Turk's GoldMoney site recently reported:
"The potential effects cannot be underscored enough – PAGE is clearly preparing the world for a Chinese world reserve currency, and is doing this by bringing gold, and by extension silver, back into the Chinese economy."
Forbes also wrote about this development, and said:
"It means the spot market in gold could be headed for China– and away from London's Metals Exchange or the COMEX in New York."
This new gold exchange is a huge development--a big step towards backing China's currency with gold. Clearly, you can see that the Chinese government is determined to make gold a much bigger part of their financial system in the coming years. Chinese government will dump US Dollar very soon. They are holding over $1trillion in US treasuries at present.

But where is all of this headed? GOLD will become the way of life for most chinese people and the chinese government. Happy investing in Gold for wealth protection.

Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK.

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