News report of Chinese crowd buying gold

May 20th, 2010

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A few years, we advised one of our Chinese friends to buy gold. Back then, there was a craze among Chinese investors to invest in stocks (and mutual funds). Our friend queued up at the bank and asked to buy gold. The lady behind the bank counter then laughed at our friend.

?You want to invest in gold?? she asked, being amused. ?Nobody invest in gold!?

Fast forward to 2009.

The property bubble in China was powering ahead, after a brief disruption in 2008. Then in 2010, the Chinese government began to crack down hard on property speculation (see What if China crashes?). Hence, as we wrote before in Will a crashed Chinese property market lead to an embrace of gold? Part 2- Store-of-value function, it becomes very logical for the Chinese to move their speculation from property into gold.

Today, we see this news report (notice what one of the lady said about one property of gold that is not present in property):

As Paul, one of our readers said,

Any hint of softness in price will cause the Chinese to stop buying. Conversely, any hint that the price is set to rise, and they will rush in.

Once gold enters the mainstream imagination of the Chinese people, you can imagine what will happen to gold prices. This could be the beginning of the trend.

How to buy and invest in physical gold and silver bullion

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  • Pete

    Slightly off-topic (but that never stopped me before), I had been thinking about the Australian Governments resource tax.

    It seems to me that it may, from the Governments perspective, possibly be a genius hedge for future revenue!

    Scenario 1: Mining boom takes off again, local miners make big profits, Government gets revenue from mining profits.

    Scenario 2: Mining boom falls in a giant heap due to economic woes, gold goes way up in price, local gold miners make lots of profits, Government gets revenue.

    Thoughts anyone?

    I'm not saying they are clever…I'm just saying from their perspective it is probably a stroke of genius. Although it may also be political suicide if they don't know how to market it to voters.

  • Hmmm….

    Another idea: Perhaps the government deliberately wants to slow down the rate of mining investment in Australia in order to restructure the economy away from mining? 😉

  • Pete

    That is possible… although that doesn't explain why they have then spent all of the money from the resources tax already on other things?

    Then again, that also partly defeats my initial point too.

    I really wouldn't expect the Government to be too clever on this… I continually get the impression that they have no idea what is going on. I guess we'll see how much they really understand Australia's and the global economy soon enough.

  • Pete

    Another point unto thyself…

    Could this tax also be a hedge on the AUD falling?

    Falling AUD = increased mining profits?

    That way the Gov. can still rake in some revenue whilst the interest rates and costs of living skyrocket.

    In theory anyway. They'd probably waste it on some hair-brained stimulus again.