Skip to comments.Why the West sells gold and China buys it
Posted on 01/21/2014 3:25:34 PM PST by BfloGuy
A number of readers and bloggers have recently suggested there must be collusion between America and China over the transfer of physical gold from Western capital markets. They assume that governments know what they are doing, so there is a bigger game afoot of which we are unaware.
The truth is that China and Western capital markets view gold very differently. You will hardly find anyone in the London Bullion Market who regards gold as money; and for them if gold is no longer money Chinese demand for it is not a monetary issue. Instead it threatens the bullion banks’ business that a useful financial asset, capable of earning many times its physical value in fees, commissions, turns and interest, is being leeched out of the market by Chinese aunties.
It is clear that nearly all Western central bankers share this view, believing that gold will never play a monetary role again. We also know that Marxist-educated government advisers in China have been sheltered from the Keynesians’ antipathy against gold and instead have been brought up on Marx’s belief that Western capitalism will eventually destroy itself. It therefore follows they believe that western paper currencies will probably be destroyed as well.
Otherwise we can only speculate, but the following conclusions about why the Chinese are accumulating gold seem to make most sense:
The idea that America is colluding with China in the gold market must therefore be nonsense. The truth has everything to do with different philosophies about gold.
Advanced western economies have survived without using gold as money for a considerable time. Currency and credit inflation have created a modern finance industry wholly dependent on fiat paper and everyone in mainstream finance is conditioned to believe in the profitable world of fiat currencies. They are therefore predisposed to dismiss gold as never being money again.
That is why the West is less worried about losing physical gold than it should be, and China is glad of the opportunity to buy it. And she can be expected to continue to do so whatever the price, because she knows that in the final analysis gold is the only true money.
Even many conservatives [FReepers among them] pooh-pooh the idea of gold as money. Better, they say, to have ammo or food to trade.
Well, in a world pushed back to a state of barter, they might have a point. But if some semblance of modern commerce is to be maintained once the fiat currencies lose their value, then gold will be the logical replacement.
Oh, and if the Internet remains after the crash, BitCoin and its ilk will still play a role -- it will be traded for gold, though, instead of Dollars and Euros. Its value will always be defined in terms of other money; not in and of itself. It's intangible.
Ultimately, wealth consists in tangible goods.
Because China doesn’t need to buy votes with entitlement spending.
Our government probably sold the German gold to the Chinese.
“because she knows that in the final analysis gold is the only true money.”
This of course is not true... A scarce commodity is only of value if somebody else wants it. If China had possession of every oz of gold and nobody else wanted it, it wouldn’t be good for much.
But that's not the case. Lots of people want it. Our government doesn't seem to care, but many Americans disagree.
I am not discounting the value of gold as a currency or a medium of wealth that will never be worth nothing. However, it is possible that the Chinese may be hopping out of the frying pan (buying tons of low yield U.S. debt) and into the fire (substituting gold for a way to manipulate the value of their currency). It is not impossible to envision a time not too long from now where the U.S. interest rates are double what they currently are and the price of an ounce of gold is significantly less than what it is now. Their holdings will have been crushed in value unless they hold the debt to maturity (taking a beating on inflation and opportunity risk) as well as lower commodity prices. Not to say this WILL happen, but it is a valid scenario.
“But that’s not the case. Lots of people want it. Our government doesn’t seem to care, but many Americans disagree.”
If China had it all, Why would you want it? They have all of the panda bears too... Why would you want it? I guess it would make elegant fishing sinkers:-) There are lots of other things that have more inherit value to barter with...
That has nothing at all to do with the subject.
Why would you want it? I guess it would make elegant fishing sinkers:-) There are lots of other things that have more inherit value to barter with...
If you'd read my post carefully, I said that if we were to move beyond barter, we would probably return to gold. It is one thing to exchange 5 rounds of ammo for 3 fish and a couple of eggs to trading with a commodity that is accepted by many and doesn't depend on my need for bullets and yours for fish and and eggs on a given day.
“If you’d read my post carefully, I said that if we were to move beyond barter, we would probably return to gold.”
Except that it would not be gold if China held all of it... There’s nothing magic about gold. It’s just a rare commodity. Not that much different than a bit-com. It’s only worth what people perceive it to be worth.
Used throughout industry ,,,used up
The only proven antibiotic against todays blooming bacterias .
Silver ...is about 5 times below its historical position with gold at this time.
Every word you wrote is true. All value is subjective.
Gold has been highly-valued for millennia. Virtually all of it that has ever been mined still exists and its quantity rarely increases by more than 1% or 2% a year.
AND it's tangible. You can hold it in your hand or gaze upon it in your safe deposit box. I may be nothing but a dinosaur, but I still think gold's tangibility will be the eventual death [or disadvantage] of the BitCoin crowd.
All of that my puny opinion, of course. I hold no ill will toward electronic currency per se. I don't think BitCoin's a "ponzi scheme". The Internet's just too slippery to convince me that it's a long-lasting phenomenon.