China Equity Bubble May Lead to Inflation, Higher Gold Prices: Cooper

Release Date: 
Friday, July 10, 2015

Gold and Silver Prices
Gold is holding on to its gains from the weakness in the U.S. dollar, concerns over China’s economy and the Greek crisis.

“Gold scaled higher on Friday, moving further away from a four-month low, as the euro rose on signs of progress in debt-hit Greece’s efforts to secure fresh funding… The Greek government sent a package of reform proposals to its euro zone creditors on Thursday in a race to win new funds to avert bankruptcy and will seek a parliamentary vote on Friday to endorse immediate actions.  The euro climbed against the dollar on the news, making dollar-denominated assets such as gold cheaper for buyers using other currencies.” (“Gold pushes above 4-month low as euro climbs on Greece hopes,” Reuters 7/10/15)

Gold finished the week down $3.90, closing at $1,162.80. Silver prices closed the week at $15.72, down $0.06.

China Equity Bubble May Lead to Inflation, Higher Gold Prices: Cooper
Peter Cooper, editor and publisher of the financial website ArabianMoney, believes China’s response to a stock market bubble may fuel inflation and lead to higher gold prices.

“What do we know about how central banks respond to stock market crashes? Typically they lower interest rates and ease monetary conditions in liberal fashion and worry about the inflationary consequences later. So now that China is seeing its own version of the 1929 Wall Street Crash should we not expect the same? In 2009 China greeted the global financial crisis with a stimulus package equivalent to half its GDP…

“The danger is that pumping money into an economy causes bubbles. Indeed the stock market bubble in China that is bursting now is the direct effect of the policy response to the global economic crisis in 2009, six years ago.

“Where will the money go this time? Likely the same place as last time: precious metals. Gold went on a tear from under $800 to $1,923 an ounce between 2009 and 2011, and that was the best performing asset class apart from silver, up from $8 to $49 an ounce… Investors in gold and silver will get very rich – as prices will soar as Chinese inflation takes off – but it will be very hard for anybody else.” (“Peter Cooper: China’s policy response to its equity crash to be inflationary and boost gold,” ArabianMoney, 7/8/15.)

Gold May See Triple Digit Gains: Profit Confidential
Robert Baillieul, Editor-in-Chief at Profit Confidential, sees new record gold prices due to limited supply and a flight to gold.

“Over the next few months, you could make triple-digit gains in one of the world’s most hated commodities: gold. No, you won’t get rich quick. But as I’m about to show you, some of the world’s smartest investors have been quietly accumulating precious metals. And before the move is over, we could see prices more than double. Let me explain…

“Over the past few years, some of the world’s smartest investors have been quietly accumulating massive positions in gold, silver, and other hard assets. As my colleague Jing Pan wrote last week, billionaire investor Ray Dalio has been warning savers to get out of fiat currencies. He has been storing his wealth in a collection of precious metals and mining companies…The question is; why are they buying gold now?

“Here’s the problem: according to most industry estimates, the average cost to produce one ounce of gold is about $1,500. At current rates, miners are losing money on almost every ounce of metal they haul out of the ground. That’s exactly why the current situation won’t last… Eventually, the laws of economics dictate prices will rise to meet the cost of production—that’s more than 30% above today’s levels.

“At this exact same moment, central bankers are flooding the world with phony paper money…You can’t print trillions of dollars out of thin air without any consequences. Eventually, all of this money will flood into the marketplace, raising prices across the board. Just as we saw at the beginning of this century, the only way savers will be able to protect their wealth will be through hard assets like gold…

“When inflation starts working its way through the system, it’s impossible to predict how high gold prices could go. $2,000? $3,750? $4,500? Some mining experts see spot rates going as high as $5,000 per ounce….” (“Gold Price Forecast: This Could Send Gold to $5,000,” Profit Confidential, 7/6/15.)

Gold Will “Snap Back” to Much Higher Levels: Holmes
Frank Holmes, CEO of U.S. Global Investors, explained why gold remains an important currency in today’s economy and will likely return to much higher levels.

“There are so many new central banks who have become a player in gold and selling gold to provide stability in their currency volatility is a factor I heard of in Europe earlier this week… It’s interesting in research reports … the Office of the Currency Comptroller has moved gold from a commodity category to a currency so gold is a currency. Gold will rise dramatically in these other countries’ currencies because as the EU continues to give money to Greece, it’s just being wiped out so gold will have this reset valuation that’s going to take place…

“The German banks and French banks will have to be recapitalized just like the Greek banks. This recapitalization means currency debasement and this will mean that gold will have a snap back to much higher levels…” (“Gold Still An Important Global Currency – Holmes,” Kitco, 7/6/15.)

High Demand Exhausts U.S. Mint Supply of Silver Eagles
The U.S. Mint reported that it temporarily exhausted supplies of its silver American Eagles.

“The U.S. Mint said on Tuesday it temporarily sold out of its popular 2015 American Eagle silver bullion coins due to a significant’ increase in demand, the latest sign plunging prices have spurred a resurgence of retail buying. In a statement sent to its biggest U.S. wholesalers, the Mint said its facility in West Point, New York, continues to produce coins and expects to resume sales in about two weeks…

In 2013, the historic drop in precious metals prices unleashed a surge in global demand for coins, forcing the mint to ration silver coin sales for 18 months. Dealers attributed the recent rush to purchase silver coins and bars to its low price relative to gold. The gold-silver ratio was ‘way out of whack...That was a sign that silver was too low and people started buying. People view it as an opportunity in the long run.’

“On Tuesday, one ounce of gold would buy as much as 78 ounces of silver, which is historically a very wide spread.” (“U.S. Mint sold out of silver coins due to strong demand,” Reuters, 7/715.)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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