Lear Capital: China Hints at Purpose for Gold Accumulation

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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.