is buying gold, why don't you?
October 17, 2008
By Larry Edelson
The credit collapse is not entirely over. Nor is its impact
on Main Street. And as we saw yesterday, there will be more
sell-offs, sharp ones that scare the dickens out of nearly
why I suggest sticking mainly with natural resource-based
companies that operate businesses which deal in assets that
have intrinsic value — and that will be the main recipients
of the next wave of what I call the “Great Re-inflation.”
At the top of
that list is my all-time favorite: Gold. You know I’m
a gold bug. And given everything that’s happening
in the world today, I’m more of a gold bug than ever
How can you NOT
be in gold?
There are dozens of reasons I believe everyone must own
some gold. But lately, there’s another one that’s
rising to the surface …
China Is Soon Going to Make Some Big Buys In the Gold Market.Just
yesterday, China’s central bank announced that its
foreign-exchange reserves rose to a record $1.905 trillion.
If China were
to lay this nearly $2 trillion in surplus reserves end-to-end
using dollar bills, the trail would stretch for 193,813,130
miles. That’s enough to wrap around the widest part
of the earth 7,752 times!
piggy bank is overflowing with money. In fact, at nearly
$2 trillion, China has the largest foreign reserves of any
country in the history of the planet.
Compare it to
Washington, which now has nearly $11.4 trillion in debts,
not counting the contingent liabilities of the real estate
crisis, Social Security or Medicare.
Whose paper currency
do you think should have more purchasing power Naturally,
the yuan. Yet that’s not the case — the dollar
remains stronger. But not for long.
I warned of this
a couple of years ago, but now the signs are even clearer:
Over the next few years China is essentially going to corner
the world’s gold market.
of the chief reasons I am now even more bullish on gold,
expecting the price of the precious yellow metal to eventually
exceed $2,000 an ounce.
Mind you, Beijing
won’t intentionally set out to corner the gold market.
But, in effect, that will be the end result.
Take it from
me. I’ve met with central bankers, regulators, and
gold traders in China and Asia. I know Beijing’s views
on the yuan and gold.
You see, Beijing
knows that the dollar’s status as a reserve currency
is soon going to be history. Just like the pound sterling
lost its status as the world’s reserve currency in
the early 20th century.
in Beijing also believe that as China rapidly progresses
toward superpower economic status, the yuan should be a
world-class, stable medium of exchange.
the yuan as a major international currency some day, with
as much (or more) status than the U.S. dollar. That’s
why they’re going to back the yuan with gold …
loads of it.
another reason for Beijing to buy more gold as part of China’s
piggy bank. China has an estimated $1.3 trillion invested
in dollar-denominated investments. They can’t get
out of the dollar quickly. It would destroy the U.S. economy
which would have a direct negative impact on China.
So the smart
thing to do: Hedge and diversify existing dollar holdings
with gold. Consider this: Right now, China has a mere 0.9%
of its reserves in gold (600 tons). That’s the lowest
of any industrialized economy! To put it into perspective
… The U.S. has 77.3% of its foreign reserves in gold.
Union has 23% of its reserves in gold. Lithuania, Mozambique,
and even tiny Nepal all have more of their reserves in gold
Just to up its
reserves to 5% in gold, Beijing would have to purchase $93
billion worth of bullion. That could easily send the yellow
metal skyrocketing to more than $2,000 an ounce.
And if China
were to match roughly half of the gold reserves held by
the United States, it would have to buy another $636 billion
worth. That kind of buying would send gold to well more
than $2,000 an ounce. Probably to $3,000, or even higher.
My view: China
has already started purchasing small amounts of gold. It’s
one of the reasons gold is now holding support at its 1980
high in the mid-$800 level, well above important support
levels on the charts from $600 up to $735 an ounce.
This is yet another
reason I recommended you substantially increase your gold
holdings back in mid-September.
I believe gold
is still one of the best bets out there, loaded with huge
profit opportunities. No matter what aspect of the market
I examine, I see much, much higher prices to come for the
precious yellow metal.