This report is big...
A report suggests that the Chinese government is pushing the general public into buying gold and silver bullion, which could have a dramatic effect on the markets.
This is an absolutely fascinating report. Just yesterday I was making the case that our government mistakenly believes we can spend our way back from bankruptcy to prosperity. Now here's a government, China no less, not only advocating that the people save, but that their savings be gold and silver.
A several observations may be made about this report:
- China is recommending physical gold and silver bullion as appropriate investment and savings vehicles, not stocks, ETFs, futures, options, etc. Why do you suppose that is? Answer: because the bullion is safer than the paper. A mine can be nationalized effectively sending the value of its shares to zero. Similarly, other paper investment vehicles are only promises to pay and subject to force major and can be defaulted. These risks are very real and that's why they tend to have a higher return than the bullion. The bullion is safe, and therefore, smart.
- China wouldn't dare make such recommendations if they didn't have confidence that gold and silver would be profitable as well as be a safe store of their wealth. Note that the Chinese people buying gold and silver will probably make the recommendation something of a self-fulfilling prophecy.
- China wants to become an economic super power. One of their tactics to accomplish this is to steadily swap their enormous dollar holding for raw materials thus turning worthless dollars into real assets. But they know a nation can hardly achieve such a goal if the majority of its people live in poverty. China knows the fast track to wealth for its citizens is through gold and silver, especially in the years ahead as the Western economies inflate their currencies into oblivion and crash and burn.
- This offers at least one explanation for why China continues to purchase our US Treasuries or at least hasn't dumped them yet - they are, in effect, supporting the dollar which in turn suppresses the price of gold making it relatively affordable for many Chinese. After, they start buying en masse though, the price will become prohibitively expensive if any of the metal is even available at all.
Now we have to wonder, why doesn't our government encourage us accordingly?
