Editor’s note: The following is a guest commentary from one of WND’s sponsors, Kevin DeMeritt, president of Lear Financial. If you would like to learn more about investing in precious metals, take advantage of the free information Lear Financial is making available to WND readers.
Maybe if Nauru, one of the world’s smallest nations at 8.5 square miles and 13,000 citizens, tripled its gold demand, nobody would notice.
But China is a whole different story. Here’s a nation with 1.2 billion people. When analysts announce its gold demand is set to triple, that’s big news.
Where are these dramatic forecasts coming from? The World Gold Council recently predicted “a rise in demand for gold in China from the current 200 tons to an annual 600 tons over the next few years.”
A loosening of China’s iron grip on the nation’s gold market is what’s driving this demand. The Associated Press reported on Sept. 7 that “China’s gold-crazed masses will now be allowed to trade in the precious metal under reforms that will upgrade trading on the country’s emerging market.”
The AP report went on to say, “Trading in gold will provide another choice for individual investors who keep their money stashed in bank accounts due to a lack of desirable investment options.”
Bored Chinese savers … now big-time gold investors?
How much of this stashed Chinese money are we talking about? According to China’s central bank governor, Zhou Xiaochuan, 1.2 trillion yuan ($145 billion) is piling up dust in the nation’s savings accounts.
That’s a lot of pent-up investment energy. Under the new reforms and given the Chinese people’s reverence for the precious metal, the factors are lining up for that investment energy to soon account for record gold purchases.
This decades-long demand can be seen in the shopping habits of Chinese tourists. In Hong Kong and other Asian cities, these tourists quickly zero in on the local jewelry shops where they eagerly exchange their savings for treasured gold (at least as much as they can legally take back with them).
To fan the flames of this nationalistic gold desire, the Shanghai market has just lowered the bar for gold purchases – literally offering smaller, 50-gram gold bars for trade. That’s equivalent to 1.76-ounces.
China’s clever chess move
So what made China lift the “golden curtain”?
Probably not out the goodness of its still communistic heart. Over the past few years, as the dollar – the currency China is so utterly dependent on – sunk to new lows, the Chinese government has quietly scrambled to increase its paltry reserves of gold.
Contrast this: China’s foreign exchange reserves currently amount to a whopping $144 billion – the largest dollar reserve in the world – yet its gold reserves are at a miniscule 3 percent of that.
The United States maintains the example of what a “prudent” gold reserve should be. At a purported 262 million ounces, our gold reserve represents about an ounce per citizen. But for the Chinese government to attain anywhere near that lofty per-capita standard, it would have to acquire at least a billion ounces of gold, something that could theoretically take 14 years of the planet’s entire production of the precious metal. Needless to say, this just isn’t realistic. And the economic and political consequences of even attempting to do so – and of officially throwing in the towel on the dollar in the process – could herald a global depression of nightmarish dimensions.
Give China credit for being subtler than that. If, instead of making a higher gold reserve official state policy, China liberalized its gold acquisition and ownership laws so that its citizens could load up on the precious metal, the government would have access to a large, latent gold reserve, yet not officially undermine the dollar.
This is apparently what’s happening now, and China’s state-run newspaper isn’t bashful about saying so. “Encouraging civilian reserves of gold has strategic significance and economic value. In case of an economic crisis, the state could buy gold from residents and use it to pay back foreign debt,” China’s Financial News quietly reported recently.
Notwithstanding the implied threat of a totalitarian government one day confiscating privately held gold at bargain basement prices (or at no price at all), the Chinese people are still expected to stockpile gold at an unprecedented rate.
The impact on gold … and you
So what happens if a big chunk of that $145 billion in Chinese savings gets invested in gold?
While it may be hard to hazard any kind of accurate guess, it’s safe to say gold would be heading higher. A lot higher. And that would be regardless of whatever gold purchases the U.S. and other nations made.
But China isn’t the only nation liberalizing gold sales.
In India, consumer demand has been averaging a stunning 31 percent annual growth. Eleven years before China did, India deregulated their gold trade and, since then, private gold ownership has soared in popularity (not that the precious metal didn’t already have powerful cultural and religious significance to the Hindus).
Throw in the increasingly popular Islamic Dinar, the 100 percent gold currency hoped to one day be the money for a billion Muslims, and you start to see the kind of global demand shaping up for gold.
Don’t mistake it for a mere flash-in-a-pan ignited by a herd of TV talking heads, as is sometimes the case in our country. Instead deep-rooted ancestral and even religious traditions are at work here, now freed by liberal gold-ownership laws. Think of it as the release of a mighty dam of ancient sensibilities, one whose flow will only keep rising as the years go by.
You can get out of its way and keep investing the way you’ve always invested. Or you can buy the same gold as the Chinese, the Indians and the Muslims intend to buy, and enjoy the ride of your life. With Eastern demand for gold and oil soaring to new heights, and with the U.S. deficit sinking to new depths, this is a pivotal moment to make your decision.
Special for WND readers, Lear Financial is making available free information on investing in precious metals.
With more than 20 years of industry experience, Kevin DeMeritt is president of Lear Financial, one of today’s fastest growing and most successful precious metals investment firms.
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