With gold prices tumbling in 2015, you might wonder how China would have anything to do with it.
The Chinese government has recently reported its gold reserves stand at 1,658 tons. (Source: Reuters, last accessed August 7, 2015.) This is below what analysts were expecting. The result was a surge in gold selling.
But why in the world would a person believe anything the Chinese government says?
The PRC government has actively been encouraging citizens to amass private gold holdings, aiming for a majority to be in the hands of citizens and the remaining amount in commercial and central banks. (Source: Mining.com, last accessed August 7, 2015.)
This is echoed by the findings of Koos Jansen, whose research suggests that China purposely understates its domestic gold mining. (Source: Bullion Star, last accessed August 7, 2015.) Indeed, analysts had been regularly estimating the Middle Kingdom’s gold reserves at 2,000 to 3,000 tons. (Source: MarketWatch, last accessed August 7, 2015.)
But why would the Chinese deliberately misrepresent this figure?
Think about it. Beijing has absolutely no interest in disclosing its true gold reserves, which keeps bullion prices lower than they would otherwise be, allowing the Chinese to continue purchasing gold at a discount to its true value.
The country has massive geopolitical aspirations, which include transforming the yen into a global reserve currency at least partially backed by physical gold. (Source: RT, last accessed August 7, 2015.)
Indeed, China possesses trillions in U.S. dollar reserves which it wants to diversify, and gold is the perfect value haven. The market conditions are absolutely perfect for such a plan: the greenback’s value is high and gold prices are low. Add to the mix China’s ability to fudge the books and you have a very likely scenario in play here.
The current state of gold prices is not an accurate reflection of its value, which is being manipulated on futures markets that deal in virtual paper gold. Let that sink in for a second, and let the natural conclusion come to you.
Gold is a lot more valuable than its market value would suggest, and in a coming crisis, will literally be the most valuable thing you can own.
Gold hit a record high following the 2008 Financial Crisis. Despite its current misery, it is trading at a higher price than in the mid-2000s. The yellow metal tripled in value between 2006 and 2012, driven by low interest rates and the fear of financial collapse.
The current campaign against gold investments, coupled with mass market manipulation, is a concerted effort to push bullion prices down so that wise investors can benefit from buying it at lower prices.
It will go up in value, of that you can be sure.
Economic uncertainty is brewing on the horizon, and its symptoms are everywhere. Financial woes in China and Greece, low commodity prices across the board, and housing bubbles in most major economies could very well spell doom for the global banking system.
We have gone through two stock market crashes in 15 years, and the ingredients for a third, more shattering and profound in its effects, could well be around the corner.
For thousands of years, gold has served as the greatest insurance policy against such a crisis. And this isn’t conjecture, because crises happen and gold increases in value, over and over in a cyclical historical pattern.
The question is; which side of the equation do you want to be on when a crash hits?
When a financial crisis hits, the price of gold immediately skyrockets, and the chance to buy the age-old form of security is lost for those traders who were not smart enough to invest when it was cheap.
But this isn’t really an issue with market forces; it’s about analysts not understanding how gold is fundamentally different from bonds and other investments. It’s a form of long-term value storage in the event of financial crisis or even collapse, and is guaranteed to retain value long after virtual investments have gone up in smoke.
This is why diversifying your portfolio to include gold is the most ideal hedging strategy against return-driven assets such as stocks, bonds, and treasuries.