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-- Posted Sunday, 28 June 2009 | Digg This Article | | Source: GoldSeek.com

It is interesting to hear a senior economic researcher from the Chinese Communist Party calling for bigger gold purchases by China to diversify away from the US dollar whose devaluation looks inevitable with the printing of money to finance deficits.

This conclusion from Li Lianzhong, head of the party’s policy research office, came in a statement late last week but is only the latest indication of the way the wind is blowing in the People’s Republic.

Golden opportunity

‘Should we buy gold or US treasuries?’ he asked. ‘The US is printing dollars on a massive scale, and in view of that trend, according to the laws of economics, there is no doubt that the dollar will fall. So gold should be a better choice.’

The same logic underpins recent purchases of commodity assets around the world by Chinese companies, from $1.5 billion for a 45 per cent stake in Singapore Petroleum to the purchase of Swiss oil explorer Addax Petroleum for $7.2 billion last week.

In the past six months China has also lent $45 billion to Russia, Brazil, Venezuela and Kazakhstan in exchange for long-term crude oil supply deals. Oil is black gold and a hedge against US dollar devaluation.

Where the logic of experts like Mr Lianzhong breaks down is that while China might diversify away from the US dollar gradually, any sudden devaluation of the greenback would badly impair the value of its massive US t-bond holdings.

This then looks a time for the inscrutable Chinese to smile and talk of support for a strong dollar while bailing out of this asset class by the back door. Buying gold, silver and industrial commodity assets are a neat way to achieve this objective.

Price spike imminent?

However, by monetizing gold in this fashion international investors will surely appreciate that a floor is being put under the gold price, with the prospect of upwards only price revision.

It is exactly this kind of impossible-to-loose investment scenario that produces price spikes, and if you look at the longer-term technical chart for gold it does look remarkably similar to the Nasdaq in the late 90s before it really took off.

In that case Chinese gold buyers would be well advised to speed up their purchases before they miss the boat on gold prices. Meanwhile, publicity conscious Dubai resident Paris Hilton knows a trend when she sees one, and is due to appear clad only in gold on an upcoming champagne commercial, see above!

-- Posted Sunday, 28 June 2009 | Digg This Article

About Peter Cooper:
Oxford University educated financial journalist Peter Cooper found himself made redundant by Emap plc in London in the mid-1990s and decided to rebuild his career in Dubai as launch editor of the pioneering magazine Gulf Business. He returned briefly to London in 1999 to complete his first book, a history of the Bovis construction group.

Then in 2000 he went back to Dubai to become an Internet entrepreneur, just as the dot-com market crashed. But he stumbled across the opportunity to become a partner in www.ameinfo.com, which later became the Middle East's leading English language business news website.

Over the course of the next seven years he had a ringside seat as editor-in-chief writing about the remarkable transformation of Dubai into a global business and financial hub city. At the same time www.ameinfo.com prospered and was sold in 2006 to Emap plc for $27 million, completing the career circle back to where it began a decade earlier.

He remains a lively commentator and columnist as a freelance journalist based in Dubai and travels extensively each summer with his wife Svetlana. His financial blog www.arabianmoney.net is attracting increasing attention with its focus on investment in gold and silver as a means of prospering during a time of great consumer price inflation and asset price deflation.

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