-- Posted Friday, 20 December 2013 | | Disqus
By Peter Cooper
At first sight the huge amounts of gold being sold by Western gold exchange traded products this year sounds a disaster for gold and indeed it has greatly contributed to the recent slump in gold prices. However, there is a nasty sting in the tail of this selling that will come back to haunt the gold ETPs.
Because most of this gold has ultimately been exported to China it has gone on a one-way journey. Gold exports from China are banned. They want it for their national reserves. When the gold investors now massively shorting gold want to cover their shorts then the gold will not be there, except of course if they are prepared to pay a very, very much higher price.
Profits for the bulls
The gold bears have set themselves up for massive losses and will also miss out on the massive profits to come in the next stage of this bull market. What will cause the ETPs or US retail investor to start buying gold again?
Perhaps it will be the same thing that prompted the Federal Reserve to cut its QE program this week: the US economy is now on a stronger recovery path and that will prove inflationary rather faster than anybody thinks possible. One hint of inflation taking off and every US investor will want his or her gold hedge again.
But it won’t be there because all the gold has left on a slow boat for China. As we have pointed out on the website before the Chinese are buying gold for the same reason: to hedge against rampant domestic consumer price inflation in their own economy (click here).
China was the world champion of stimulus packages in 2008 and spent the equivalent of more than half its GDP. It was way ahead of the US QE program in boosting its money supply and causing domestic price inflation, particularly in food and housing.
Short of gold
The US will simply get there next and unfortunately it will be when its vaults are very short of physical gold. When everybody wants to buy something and it is in short supply then the price will go up in a huge spike. The gold bulls will have their revenge after a disappointing couple of years for precious metals.
How should you prepare to best capitalize on this move? That’s what the New Year edition of our sister monthly investment newsletter will be asking (subscribe here). Contrarians will take our advice, the lemmings will safely crowd together to head over the cliff!
-- Posted Friday, 20 December 2013 | Digg This Article
| Source: GoldSeek.com
