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Lear Capital: China Hints at Purpose for Gold Accumulation

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Sponsored Post by Lear Capital

China Hints at Purpose for Gold Accumulation

It's no secret that China's gold demand is soaring. They are buying mines, concentrates from which to extract gold and as much physical gold as they can secretly buy in world markets.

Reports also indicate, the people of China are being encouraged to buy some gold with every paycheck as the future of the world economy is uncertain at best. As world debt expands, currencies are debased and gold prices rise as a result.

Frustrating, is the fact, that the Chinese approach to dealing with a global debt crisis is to equip its government and its people with gold, in order to withstand the fallout of a potential Global Debt Crisis II. An approach perfectly opposite of our approach to the debt crisis - one that encourages borrowing and spending.

So intense is China's desire to own more gold that one has to believe there is greater purpose to its strategy. Perhaps we gain a little insight, as to what that strategy is, from a Reuters release today that speaks of China's desire to position the yuan as a new reserve currency.

Some believe, the dollar has only a short time remaining in its role as the world's reserve currency. When modern day printing of more dollars, only requires a few keystrokes at the computer, it's no wonder the dollar has become suspect. It seems now only a matter of time before the dollar is replaced, at least in part, as the king of currencies.

This leaves us to wonder, what happens when the event occurs? Of course there are many variables. Some believe China's appetite for gold is for the purpose of backing, or partially backing the yuan with gold. It is argued that the gold standard will never return as there simply isn't enough gold to back all the money that exists. But, what about a currency partially backed by gold? Surely, such a currency would have to carry some additional clout as it could not just be printed without adding more gold to the coffers.

Rumors have long been circulating that Arab nations were also considering a gold backed Dinar. Now throw in the possibility of the IMF creating the equivalent of a gold backed currency (a story in itself for another time) and a trend appears. Finally, let's add some drama. Just days ago, the Utah House of Representatives passed legislation that would make gold and silver money again. Money it would accept for payments of certain state taxes. The bill even proposed some tax breaks for those who would pay with gold and silver coin.

As the dollar, albeit penny by penny, is replaced by alternative currencies backed by gold, one would expect its value to shrink. Where might this send the gold price? One can only speculate that the limit to the heights the gold price may reach would only be limited to the depths in which the dollar value could fall.

Don't get caught short. Demand for physical gold is rising around the globe. At Lear Capital we believe everyone should own some. Visit our web site today for real-time gold prices and some of the best online prices for the world's favorite gold and silver coins.

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Thu, 03/10/2011 - 20:15 | 1038766 hamurobby
hamurobby's picture

and its soo damn pretty...

Thu, 03/10/2011 - 20:15 | 1038768 TeMpTeK
TeMpTeK's picture

The last lear post went over like a fart in church..

Fri, 03/11/2011 - 00:55 | 1039557 Michael
Michael's picture

It is argued that the gold standard will never return as there simply isn't enough gold to back all the money that exists.

I'm really not a genius, just a good bit above average, but even I can understand a loaf of bread can cost 10c under a gold standard, depending on how you value the gold.

Audit Fort Knox at gun point if we have to immediately. Get the gold back in there at gunpoint if any is missing.

Fri, 03/11/2011 - 01:40 | 1039670 Stuck on Zero
Stuck on Zero's picture

It is said that a man who farts in Church must sit in his own pew!

Thu, 03/10/2011 - 20:18 | 1038776 Liberty
Liberty's picture

WTF are you doing ZH?

Thu, 03/10/2011 - 20:35 | 1038791 bob_dabolina
bob_dabolina's picture

It's called profit, something this country has long forgotten.

No government government subsidies here.

I endorse, and will donate tomorrow.

Thu, 03/10/2011 - 20:36 | 1038822 traderjoe
traderjoe's picture

Agreed. And the next post - not sponsored - refers back to this sponsored post. 

Thu, 03/10/2011 - 20:19 | 1038780 glenlloyd
glenlloyd's picture

ah...another sponsored post. at least this one didn't try to lure people into numismatics

Thu, 03/10/2011 - 20:31 | 1038809 Judge Judy Scheinlok
Judge Judy Scheinlok's picture

Or pennies. Sleezebag Sykes.

Thu, 03/10/2011 - 20:20 | 1038784 The Disappointed
The Disappointed's picture

Nothing new. Advertising dreck.

Guess I should have been tipped off by the 'Sponsored Post' warning at the top.

Thu, 03/10/2011 - 20:21 | 1038786 Judge Judy Scheinlok
Judge Judy Scheinlok's picture

Anyone watching their NOB spreads tonight? ;)

Thu, 03/10/2011 - 20:37 | 1038810 duncecap rack
duncecap rack's picture

Is it just me or did everyone already know why China was accumulating gold?

Thu, 03/10/2011 - 21:52 | 1039069 gwar5
gwar5's picture

We knew.

Thu, 03/10/2011 - 22:48 | 1039212 TheGoodDoctor
TheGoodDoctor's picture

Yeah. I already filed this under: No shit Chet, no shit! :)

Thu, 03/10/2011 - 20:39 | 1038827 SilverRhino
SilverRhino's picture

Nice that China is piling into gold.  But reserve currency?  Nope.   Banking system is too opaque and their long-term stability is shit.  

Great Leap Forward / Hundred Flowers / Cultural Revolution.   Their respect for human life is shit; what makes you think their respect for your (gweilo / bakgwei) property rights is going to be any higher?  

 

Thu, 03/10/2011 - 21:47 | 1039055 clymer
clymer's picture

Maybe they see Gold itself at the future reserve currency? You know, in that interim period when people no longer trust the FED's dollars, or its' stealthily proposed replacement with SDR's?

 

Maybe China is just trying to prepare it's populace as best it can to avoid a complete rout of their own political structure when the hyperinflationary global depression begins to rear its fugly head in a way that will make us all much more miserable than we are now.

Thu, 03/10/2011 - 21:54 | 1039083 Buck Johnson
Buck Johnson's picture

China's banking system is too "opaque", not nearly as much if not the same as the US.  Not only is our's opaque, but we actually do things that scream hyperinflation or whatever to an economists and tell them that it's not.  We are the supreme hypocrites in the US of opaque.

Thu, 03/10/2011 - 20:47 | 1038851 grunk
grunk's picture

The Dinar?

This isn't that 68 trillion dollar global settlement deal, is it?

Thu, 03/10/2011 - 21:07 | 1038919 velobabe
velobabe's picture

does nobody see this article was submitted by zerohedge? why don't you think this is an anomoly? zerohedge over tyler durden. i mean do you not notice, these kind of things, people?

Thu, 03/10/2011 - 21:14 | 1038942 nonclaim
nonclaim's picture

Gold has value for its intrinsic physical and chemical properties. Outside that, the perceived value, it does not mean much.

A mental exercise: If you are really hungry and *all* you have left is a gold coin, it may buy you a piece of stale bread and nothing else. Now, if you won't buy and eat it because it's "worth" $1400+, well, congratulate yourself: you are now a miser, at least in theory.

---
I didn't elaborate the situation and there are many ways to sidestep it but that's beside the point as only you know your original answer/feeling. Be honest to yourself.

Thu, 03/10/2011 - 21:42 | 1039048 FreedomGuy
FreedomGuy's picture

You might notice it's hard to eat Federal Reserve Notes, Yuan, seashells, and anything else that has ever been used as money or a unit of account. So, what's the point? You also can't eat your car, house, clothing or your neighbor. If you have a total economic collapse the relative value of all things changes depending on your situation. However, gold and silver have been used as money for all of recorded history and they translate across every continent, race and language. I can go to Uzbekistan and wave a gold coin and every knows what I want to do. They don't give a damn if there's an eagle, a panda or a maple leaf on it. It's an ounce of gold and we can do a deal.

I actually admire the Chinese who are being more honest with their population and making plans for the worst. If the worst doesn't happen they are well positioned and have a good investment. They are taking paper notes, including our currency and buying real stuff. We get the advantage of exporting some of our inflation but they may win by holding "stuff" instead of notes.

China's purpose is to be the center of the world, again. They plan to be the preeminent power which they have learned starts and ends with a strong economy and currency. I wish we had economic leadership that gave a damn about the American people. We have already spent ourselves into oblivion and are continuing to do so. The only question is when the bill will come due and when the accounts will be balanced. China is betting it won't be long as they hold substantial amounts of our notes.

Thu, 03/10/2011 - 22:13 | 1039136 penisouraus erecti
penisouraus erecti's picture

A little unnerving is it not to think the Chinese may be getting better and more honest economic advice from their leaders than we in the US get?

Strange days we live in.

Fri, 03/11/2011 - 14:56 | 1041596 SilverFiend
SilverFiend's picture

You could eat your neighbor.

Thu, 03/10/2011 - 22:08 | 1039121 traderjoe
traderjoe's picture

What's the intrinsic value of a federal reserve note?

Fri, 03/11/2011 - 07:43 | 1039981 snowball777
snowball777's picture

Consider instead the marginal utility of only half a wheelbarrow of paper.

Thu, 03/10/2011 - 21:56 | 1039091 quantum dines
quantum dines's picture

"It is argued that the gold standard will never return as there simply isn't enough gold to back all the money that exists."

Thats a bunch of Keynesian nonsense. The amount of currency outstanding can be any amount you just adjust the ratio of paper to gold.

Thu, 03/10/2011 - 22:10 | 1039129 penisouraus erecti
penisouraus erecti's picture

++

Fri, 03/11/2011 - 09:10 | 1040128 Andy_Jackson_Jihad
Andy_Jackson_Jihad's picture

B...b...b...but you can't expand the money supply to keep up with economic growth!1!one!  If that happenend then the value of gold would rise and create larger real interest rates and deflation!! omg!  Just let our smarter leaders handle the money supply.  Nothing can go wrong there unless unions or glenn beck screw it up!

 

Thu, 03/10/2011 - 22:16 | 1039138 notadouche
notadouche's picture

Shouldn't one do what one's master does?

Thu, 03/10/2011 - 22:21 | 1039149 Grand Supercycle
Grand Supercycle's picture

The overbought warning was there for some time.

Gold charts at blog.

http://stockmarket618.wordpress.com

Thu, 03/10/2011 - 22:28 | 1039167 Dr. Gonzo
Dr. Gonzo's picture

Is the U.S. making any plans to back the dollar with gold or silver or are we just going to back it with toxic mortgages via QE 3?

Thu, 03/10/2011 - 23:23 | 1039303 Ahmeexnal
Ahmeexnal's picture

The dollar is toast. BUT the Amero is MADE of silver.

Thu, 03/10/2011 - 22:42 | 1039198 gwar5
gwar5's picture

Chinese are sneaking gold by buying mines and making redemptions out of GLD for physical which go unnoticed on the market. Keeps the price low.

Alisdair Macleod speculates China may already be sitting on over 20,000 tonnes. Yes, 20K tonnes. I know it's a stretch, but he has his reasons.

Reasons: 

China has coveted gold and silver for centuries and used them for exchange and jewelry.

Centuries of centralized Dynasties drew the riches and gold to the center and capital

Marco Polo remarked in his journals 800 years ago there was so much gold in China you had to see it to believe it.

Kubla Khan conquered China and also accumulated gold and silver when he expanded the empire. Khan issued paper currency backed by the centrally stored gold

China has never destroyed it's gold, nor has China been looted.

Chairman Mao confiscated all private property. Just one month of raids in 1966 by the Red Guard in Beijing netted 5.7 tons gold & 18 tons of silver.

Macleod speculates centuries and tonnes of gold still remain in China and says it's ridiculous to think they only have 1-2000 tonnes. He wonders how that figure could accurately be determined from a closed society anyway.

 

Fri, 03/11/2011 - 06:06 | 1039936 Treason Season
Treason Season's picture

"...nor has China been looted."

The Generalissimo and the Mrs. beg to differ.

Fri, 03/11/2011 - 08:44 | 1040085 Vlad Tepid
Vlad Tepid's picture

A link for the outrageously named Mr. Macleod, please?

Thu, 03/10/2011 - 22:53 | 1039227 torabora
torabora's picture

Why?....gold bullets for the chicom army

Thu, 03/10/2011 - 23:03 | 1039249 PlanForTheWorst...
PlanForTheWorstHopeForTheBest's picture

The argument that there isn't enough gold in the world to have a fully backed currency is ignorant.  There is always enough gold.

Fri, 03/11/2011 - 07:55 | 1039993 snowball777
snowball777's picture

The argument that a gold-backed currency will eliminate credit bubbles is also ignorant.

What happens when "everyone" attempts to convert their currency to "enough gold" at once?

Fri, 03/11/2011 - 09:11 | 1040136 Andy_Jackson_Jihad
Andy_Jackson_Jihad's picture

Gold bugs win?

Thu, 03/10/2011 - 23:22 | 1039302 plata pura
plata pura's picture

Lear capital must be heavy on numismatic gold coins, which be fine; however gold has always been and always will be inferior in utility to the precious. Parity must come.

Thu, 03/10/2011 - 23:33 | 1039329 FreedomGuy
FreedomGuy's picture

There is one really interesting aspect to gold and silver, too. If it were still currency there would never any currency/trade deficits. If accounts were actually settled in gold/PM's they are instantly convertible. Giving a gold eagle to China is precisely equivalent to a gold panda. Other than re-minting it with your own national mark, there is no conversion rate. There cannot be any currency arbitrage. The only thing you have to watch out for is diluting the metal, but even then it is instantly convertible.

Fri, 03/11/2011 - 07:53 | 1039990 snowball777
snowball777's picture

You think that might put a massive damper on international trade?

Fri, 03/11/2011 - 12:18 | 1040663 FreedomGuy
FreedomGuy's picture

I think in the long run it would help trade as sound currencies are healthy for trade. In the short run, pegged currencies like S. Korea, China and others might lose out as they can no longer artificially lower the price of exports. There would be rebalancing and that could be painful.

Second, banks would go back to what they originally were in the renaissance. No one wants to ship large quantities of gold so you would have gold on deposit in banks where it would be verified at your branch and credited at the other branch. It would be credited on a paper receipt and account which has no value in and of itself...like a reserve note, but represented real wealth.

I am under no illusion any of this will happen. I just think it's an interesting concept. No exchange rates!

Fri, 03/11/2011 - 00:10 | 1039432 CombustibleAssets
CombustibleAssets's picture

 Considering the Chinese history with counterfeiting and the fact that they are willing to advertise their skill in integrating tungsten you have to wonder how much of the product being sold in China is worth the price.

http://www.ft.com/cms/s/0/67dc062c-fe45-11df-abac-00144feab49a.html#axzz1GGDVUim9

Fri, 03/11/2011 - 01:21 | 1039628 AldoHux_IV
AldoHux_IV's picture

The IMF and other monetary based regimes are the problem-- not the currency itself.  Like guns people make them violent.  It is these financial elitards that no matter what kind of a new system backed by something shiny or not will fail unless we rid ourselves of them.

Fri, 03/11/2011 - 09:39 | 1040197 Pinky
Pinky's picture

Why would anyone pay their taxes with gold/silver?  

(Another sign Rome was going down, back in the day:  It was paying in slugs but demanding taxes in gold.)

Fri, 03/11/2011 - 12:22 | 1040688 FreedomGuy
FreedomGuy's picture

Good point. How many people would pay their taxes without withholding? If people had to pay them like a bill I think we'd have much more resistance as people see their tax bill eclipse their house and car payments. But your point is good, too. Real wealth for garbage. I submit that is what we do now. Real labor for FRN's.

Fri, 03/11/2011 - 12:22 | 1040681 FreedomGuy
FreedomGuy's picture

Yes. I've seen estimates as high as $56k. It depends how much gold is really on hand compared with paper money. Look at the revaluations in the Weimar Republic from the goldmark to the rentenmark. More importantly, if China is smart...and they are, you take those smelly FRN's and buy gold mines, gold, factories, etc., while they still have some value. In fact, turn it around and buy America. At the end, America will have worthless currency and you will own a large set of productive assets.

Fri, 03/11/2011 - 16:56 | 1042013 topshelfstuff
topshelfstuff's picture

Check the site of Hugo Salinas Price, one of my favorites.

A few that shouldn't be missed:

http://www.plata.com.mx/mplata/articulos/articles.asp

[details how to monetize Silver, one main point: Never place a Monetary/Dollar value, only the weight and purity ]
http://www.plata.com.mx/mplata/articulos/articlesFilt.asp?fiidarticulo=165

16/June/2010
The gold standard: generator and protector of jobs

04/February/2009
Gold: the protector and creator of jobs

http://www.plata.com.mx/mplata/articulos/articlesFilt.asp?offset=0&fiida...

26/November/2010

Silver money for China

Hugo Salinas Price

The time for real money has arrived, and China can lead the way by monetizing silver into small coins which can be used as money.... more>>

Do NOT follow this link or you will be banned from the site!