Could China Push Gold to the Moon?

By: David Galland | Thu, Sep 17, 2009
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Inside sources have recently confirmed the Chinese government is actively promoting gold and silver investment to the masses.

Some analysts now contend that China can no longer afford to let the gold or silver price slump. The rationale behind that contention is that with the Chinese government now telling the general populace to buy precious metals, it would be highly problematic should gold and silver subsequently take a nose dive.

In many cases, what a government wants and what ultimately occurs can be wildly different, due to unintended consequences rarely foreseen by officialdom, and because once the masses get it into their heads to break one way or another, government's desires are largely ignored.

"You shall not smoke marijuana," says the government. "Roll me another," says John Q. Public.

But in the case of gold, interestingly enough, the Chinese government has the means at its disposal to actually do something about prices. Namely, at $1,000 an ounce, the total value of all the gold ever mined comes to about $5 trillion.

Of that amount, less than $1 trillion is held in official reserves, the rest under mattresses, in jewelry and family heirlooms, and in various ETFs - GLD being the biggest, by far, holding about $34 billion worth of gold.

Against these totals, China has foreign reserves in excess of $2 trillion. In other words, more than enough to push the tiny gold market around in any way it wishes. Given that much of its reserves are now denominated in fragile U.S. dollars that it would sorely love to replace with something more tangible, and that China is the world's largest gold producer, the country's involvement with gold is something more than just a passing fancy.

Simply, there is a new gorilla in the room in global gold markets. The extent to which the broader market hasn't yet figured this out is the extent to which you as an early mover can ultimately profit. Especially in the more leveraged gold stocks, which continue to be strong even as the broader markets show weakness.

That all of this comes before the dollar hits the wall it must hit, or before the inflation that is now baked in the cake arises, lends a lot of credibility to the idea that when the gold bubble begins to expand, it could reach all the way to the moon.

No need to chase gold at these levels, as opposed to buying on dips. But buy.

As mentioned above, gold stocks - especially those of the junior exploration variety - can provide an even greater upside than gold itself. As the subscribers of Casey's International Speculator can confirm, double- and triple-digit gains within 12-24 months are nothing out of the ordinary. Click here to read more.



David Galland

Author: David Galland

David Galland
Managing Director
Casey Research, LLC.

David Galland

Over the course of his varied career, which includes a stint at the fabled Climax mine following college, David Galland has worked as a conference director for the world's largest investment conference (National Committee for Monetary Reform, 1979 to 1987), as a financial newsletter publisher or editor (Gold Newsletter, the Aden Analysis, Wealth Magazine, Outstanding Investments, among others), as a founding partner and director of a successful mutual fund group (Blanchard Group of Mutual Funds), and as a founding partner and executive vice-president for EverBank, one of the biggest recent successes in online financial services.

David is currently a partner with Doug Casey and Olivier Garret in Casey Research, LLC., an international firm providing research and investment recommendations to individuals in over 150 countries. Casey Research currently publishes several publications on a variety of investment sectors, including metals & mining, energy, technology and commodities. In addition to his management responsibilities, David serves as the managing editor for The Casey Report, a monthly publication dedicated to identifying big trend moves and how to profit from them; he also writes a daily communique, Casey's Daily Dispatch.

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