I’ve touched before how China is not only the #1 gold producer in the world, it is also the #2 gold consumer. None of China’s gold production makes it out of the country, and it imports as much as it can on top of that. A friend in Australia remarked to me when I mentioned all the Australian mines being bought by the Chinese, “They’re buying all our gold, too!” We know that China is also seeking to expand mining holdings in Africa. Industrial and consumer use can in no way explain this insatiable appetite for gold. China is building its gold reserves at a remarkable rate, though they try to be as obtuse about it as possible. With Eurozone debt crisis, Japan’s quantitative easing seemingly having no effect, and the prompt destruction of the U.S. economy assured if quantitative easing here is slowed or stopped, China is positioning itself not only to survive, but to be the new global currency.
Jim Sinclair does a sobering thought exercise by walking this thought all the way out to its conclusion in an article Monday. I confess that I had not thought that scenario out in such detail for that many steps. If China could pull off Steps #1 and #2 in Jim’s analysis, then the rest would readily follow. I can see #1 happening, but I think Putin’s ego may be a stumbling block in accepting the yuan as oil currency. Russia’s making hay selling all the natural gas and oil they can to Germany and the rest of Europe. (I’m sure Putin is happy having energy-starved Merkel under his thumb, and eliminating Germany as a political roadblock.) How bad would the Eurozone economy have to sink before Gazprom et al would shift focus to expand delivery infrastructure in their far east?
In all, an interesting thought, that so far is supported by the evidence we have. Remember, the Chinese are famous for taking the long view: A story about Kissinger asking Chou En-lai what he thought about the French Revolution has him replying “It’s too early to tell yet.” Just another reason to think of physical gold as a strategy to protect yourself.
-by David Peterson