Before flying back to the States, we spent the last several days in Beijing. While the Olympics were over, the Paralympics were underway and there was still plenty of sports related hubbub going on. Nonetheless, hotel prices had returned to more reasonable levels and we stayed just about six blocks from the Forbidden City.

Beijing was completely transformed for the Olympic games. The city was amazingly clean and there were beautiful flowers and banners everywhere. I read that more than 40 million potted flowers were used to decorate the city. Every major expressway was lined with flowers. The 20km stretch of the Airport Expressway between Capital Airport and downtown was particularly impressive.

Every major expressway also had a lane dedicated to official Olympic traffic. These lane restrictions began on 20-Jul and extend all the way until 20-Sep. Did they do that in LA, Atlanta or Salt Lake City? In our travels around the city over three days, we probably saw twenty official vehicles utilizing these lanes. Nobody seemed to be cheating, even briefly for passing purposes. That includes Beijing cabbies, who can be rather aggressive drivers. I'm guessing the fines had to be pretty stiff.

I was struck by the number of people in Beijing who wanted to take our picture, or have their pictures taken with us. Granted we definitely stood out in the post-Olympic crowd; an American family with two young Chinese boys in tow. We also had a family friend traveling with us that is a six-foot blonde woman. My wife is also quite tall. Perhaps everyone thought they were famous volleyball players.

I guess I was thinking we wouldn't be such a novelty after "The Jing" had been inundated with westerners for the previous weeks. Everyone was exceedingly polite and eager to test their English on us. People who were trying to sneak pictures of us were invited over to have their pictures taken with us. We got a big kick out of it and felt like celebrities.

The building boom in Beijing continues, despite the slowing economy. A long-time resident quipped that the 'construction crane' was the national bird of China. That same person confidently stated that 90% of the world's construction cranes were presently in China. That seemed almost plausible in my mind, although the highest percentage I was able to find from a news source was 64%. Still that's pretty darn impressive. Imagine the demand for concrete, steel, copper and other building materials still being generated by Chinese construction.

As I stood in Tiananmen Square this past Thursday, I couldn't help but think of that lone student standing in front of the PLA tanks in 1989 as they approached the square. The protests that culminated in the Tiananmen Square massacre and the subsequent political crackdown are officially referred to as "The political turmoil between spring and summer 1989." When I stood in that very spot in 2006, our guide told me that she was only aware of what really happened there from what western tourists had told her.

The PRC has worked tirelessly for nearly 20 years to rebuild their global image and in the process they have built an economic juggernaut. The games of the XXIX Olympiad went a long way toward showcasing China's role as a world power. However, in reality, China is at a crossroads.

Over the next several years it will be interesting to see how China chooses to wield its economic and political might. Where will China ultimately come down on the Russia/Georgia conflict? What about Iran and North Korea? I think it is safe to say that the US must take the China-factor into consideration when it comes to just about every global diplomatic hotspot.

In terms of the US economy, China plays an incredibly important role, providing relatively inexpensive manufactured goods. As a result, China has accumulated a huge trade surplus and massive amounts of currency reserves. China is now a major financer of US debt. How might that all play-out now that the Olympics are over? China certainly has the power to further destabilize the US economy and the dollar by ongoing actions to diversify its reserve holdings, allowing its currency to remain artificially weak or simply by buying less US treasuries.

In the wake of the rather dismal Q2 growth numbers from Japan and Europe, one has to wonder if single digit Chinese growth will be sufficient to support the contracting global economy. GDP growth for 2008 is expected to drop below 10% for the first time since 2002.

There is potential for an economic stimulus package and easier monetary policy, but probably most startling are the central government's plans for ongoing infrastructure improvements. In one of my reports from China I detailed the significant infrastructure improvements seen in Beijing in the build-up to the Olympics. These projects will pay dividends for the city for decades to come, attracting additional foreign investment.

Citigroup has enumerated a number of major infrastructure improvements slated for China, which include: Plans to double their rail network by 2020. A 70% surge in the number of airports. A 75% increase in the number of expressways and a 280% increase in seaport capacity. The rebuilding of Sichuan province in the wake of the earthquake is expected to cost $150 bln. An ever-growing need for power is going to require generating plants and expansion of the grid.

As China continues to grow, it will remain a magnet for foreign investment. As wealth is created there the Chinese middle-class will expand further. It is estimated that by 2025 China's middle-class will be the largest in the world, more than 600 million strong. At that point the Chinese middle-class will be nearly twice the size of the entire population of the United States (based on US Census Bureau estimates).

The demand created by a middle-class that size for food, fuel and just about every other consumable is staggering. The potential in China is great, but they won't have to go it alone. The rest of the BRIC nations are likely to provide plenty of growth support as well. One can imagine that inflation is going to remain a significant global problem for some time to come.

It seems that China is indeed one of the few best hopes of staving off a global recession. In an environment where established industrial economies are in recession and emerging economies like China continue to drive up prices, adding physical gold to ones portfolio makes perfect sense. It is a hedge against economic uncertainty and systemic risks. Gold is also simultaneously a hedge against broad-based inflation.

I hope you enjoyed reading my reports from China as much as I enjoyed writing them. The overall response has been incredibly positive. While I was overseas, much has transpired in the gold market. Most notably; prices remain under pressure despite an increasingly tight physical supply situation. We'll delve into that topic and the usual supply/demand fundamental starting tomorrow.

Gold Market Movers:

US ISM manufacturing for Aug steady at 49.9.

US construction spending for Jul -0.6%.

USD remains firm as oil and other commodities slide.

Eurozone PPI for Jul 9.0% y/y. Slightly below market expectations.

RBA cuts rates by 25bp to 7.0%, further easing likely.