Thursday, March 13, 2014

China and Gold

A chart of the Chinese Yuan is here.

There has been a sharp drop in the Yuan over the last few weeks. The Chinese economy appears to be faltering as the growth rate drops. And there is talk of a debt crisis in the country that if true will almost certainly be felt around the world. It remains to be seen how the money flows can reverse and who will be hurt and what the collateral damage may be.

A few posts back I posted a chart of the world production of gold overlain with the Chinese gold consumption. Chinese consumption is equal to world production. This seems to be driving the gold market, finally. Gold has been acting differently for a couple months now.

The point of this article is to consider what happens to Chinese consumption of gold if their economy starts to slow, and particularly if their currency starts a noticeable decline. We know what happens in the U.S. with a protracted decline in the dollar. People started buying gold. And this in a country without a cultural affinity for the yellow metal.

What will happen in China when people notice their money declining in value, the economy slowing, and in the presence of a modern communications system. A run to gold seems not unlikely.

Todays chart:

This chart looks set to go up.

I sold REE, and EGLE that I was working on a position in.
Am long VXX, FAZ (on the Citigroup thing) and YANG

Controlling risk,

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