Cooper: China Bubble, Hoarding Good For Gold

Release Date: 
Friday, May 1, 2015

Gold and Silver Prices
Gold prices see sawed this week, at one point moving above the $1200 level before a strong sell-off after the Federal Reserve suggested the central bank may raise interest rates in 2015.

“Gold edged lower on Friday morning while yesterday’s ‘brutal’ sell-off continues to overshadow the market…US unemployment claims came in at 262,000, the lowest level since April 2000 and below consensus of 288,000. This signalled that slack in its labour market is waning.

“It follows comments earlier this week from the US Fed regarding the normalisation of monetary policy, which appears to be dependent on inflation data and the health of the domestic jobs market… [FastMarkets analyst William Adams said,] “We still feel the Fed will remain on hold for longer and expect the dollar correction to last longer too. So gold may well have some catching up to do, especially if … investors are in need of a safe haven….” (“Gold Price Still Lower After ‘Brutal’ Sell-Off,” Bulliondesk, 5/1/15.)

Gold finished the week down $2.50, closing at $1,178.90. Silver prices closed the week at $16.20, up $0.34.

Cooper: China Bubble, Hoarding Good For Gold
Peter Cooper, Editor and Publisher of the financial website ArabianMoney, told investors that China’s equities bubble and massive hoarding of gold create a great gold buying opportunity.

“The Chinese equity bubble continued to inflate last week with 3.5 million new brokerage accounts. How long can the market sustain that sort of momentum? Another week? A month? That’s the problem with exponential market movements. They always run out of new buyers very quickly and then what has gone up will go back down again.

“What will the Chinese retail buyers do then? Not everybody will lose their shirt. … They won’t want to buy shares having just watched the market blow up, or houses…

Gold rush?

“No the only other asset class available to them is precious metals and the Chinese are already the second largest buyers of gold after India. Indeed all the official data about the movement of bullion over the past few years points to a massive transfer of gold and to a lesser extent silver in the direction of China.

“One event eagerly awaited by goldbugs is an announcement by the Chinese government that its official gold reserves are now revised up to 3-4,000 tons. That could happen as soon as next month at an International Monetary Fund meeting to discuss the composition of the Special Drawing Rights or later in September.

“On the other hand, the Chinese are in no rush to make their position clear as keeping quiet about this process has allowed it to happen at much lower bullion prices than otherwise. Still only last week a central bank official noted that China could not keep more than two per cent of its official reserves in gold because the market was too small.

Hoarding gold

“That is true when gold is only worth around $1,200 an ounce. If this currency is revalued to its proper market level then it could be a lot more useful, and that presumably is why China has been buying so much of it.

“China knows from its long history what happens when countries print too much currency. It invented paper and has witnessed many disastrous episodes of money printing in its own past. Buying up bullion on the cheap is a way to secure a key position in the coming currency reset when this system goes up in smoke.

“So which will come first: the bursting of the Chinese equity bubble or news about China’s massive gold reserves? Probably the former but both will inevitably happen and that makes gold a very good buy right now.” (“Chinese equity bubble to pop boosting gold prices - China officially confirms its huge gold reserves?” Goldseek, 4/26/14.)

Investors Who Can Do “Simple Math” Will Turn to Gold: Rule
Sprott Global Resource Investments, Ltd. founder Rick Rule told Kitco news that gold is currently providing the safe haven necessary for currency devaluation.

“The truth is, in nearly every currency in the world except for the U.S. dollar, gold has done its job for the last twelve to fourteen months. We’re in a gold bull market in most of the world’s currencies… But I suspect the North American investors who is simply competent at arithmetic will come to the gold side. Let me make the case for you.

“The competing product is… the U.S. ten year treasury. And the ten year U.S. treasuring is increasingly less attractive than gold… The idea that the cheap competition for gold is … so completely unpalatable says to me gold will do well.

“Six or seven years ago, the foregone cost for gold was the six or seven percent earned on the ten year savings… That cost is much less now… I think gold will do well in the U.S. dollars just as it is doing well in other currencies over time… The gold recovery is inevitable….”

Mr. Rule also stated he would continue to own gold “until it has done its job and I have cashed in my insurance policy and moved on as I would with any other insurance policy.” (“Rick Rule Would Throw In The Towel For Gold When...” Kitco, 4/29/15.)

Negative Interest Rates To Spark Massive Global Default
An article in Great Britain’s Telegraph warns the negative interest rates pervading the world will end in a massive default of government debt.

“More than €2 trillion-worth of eurozone government bonds trade on a negative interest rate. It's a bubble that is bound to end badly.

“1. Here’s an astonishing statistic; more than 30pc of all government debt in the eurozone – around €2 trillion of securities in total – is trading on a negative interest rate.

“2. On a country by country basis, the statistics are even more startling. According to investment bank Jefferies, some 70pc of all German bunds now trade on a negative yield. In France, it's 50pc, and even in Spain, which was widely thought insolvent only a few years ago, it's 17pc.

“3. Not only has this never happened before on such a scale, but it marks a scarcely believable turnaround on the situation at the height of the eurozone crisis just a little while back, when some European bond markets traded on yields that reflected the very real possibility of default. Yet far from being a welcome sign of returning economic confidence, this almost surreal state of affairs actually signals the very reverse

“4. One by one, all the major central banks have joined the money printing party. First it was the US Federal Reserve. Then came the Bank of England and later the Bank of Japan. Just lately, it’s the European Central Bank. Now even the People’s Bank of China is considering the “unconventional” monetary support of bond buying. Anything to keep the show on the road.

“5. The flip side of the cheap money story is soaring asset prices…Eventually, there will be a massive correction, in which creditors will suffer sickening losses. (“Negative interest rates put world on course for biggest mass default in history,” Telegraph, 4/29/15.)

American Advisor Week In Review
Goldline provides a wrap-up of the week's precious metals news along with important commentary on the American Advisor Week in Review audio program: What will the Feds do with interest rates? Learn in this week's American Advisor.

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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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