Monday, April 27, 2009
Last week the Internet was a buzz with news that China officially announced that it would increase its gold reserves.
Newsworthy yes, but as Otto over at IncaKolaNews in this article magnificently articulates... major news reports and analysis seemed to miss the bigger picture.
I myself posted a small analysis on this topic last Friday, April 24, 2009.
I may have mislead readers slightly with the gold chart I included. I was not suggesting gold is a good investment at the moment. I am no gold expert, and I definitely am not in any position to say whether China's move to buy more gold will affect the global price of gold.
However, I have read a good deal about gold in history text books and in the news in recent months with the global slowdown. It is clear gold remains as it has throughout history, a store of value.
My analysis simply to articulate the following:
China is concerned about the possibility of inflation eroding the value of the money countries like the United States will eventually have to pay back. As developed economies lower interest rates and print money to spur growth their currencies will eventually weaken as money floods the global economy. Likewise, the RMB (Yuan) will likely continue appreciating as China's economy continues to develop. and modernize. All this is not good news for the money China has stashed away in its rainy day fund.
I highly recommend readers who periodically access this site for commodity or China related news or who have simply stumbled upon this post READ -- Otto's analysis on the impact China's gold purchases on the greater market.