Sunday, January 6, 2013

China and gold, re an old comment by comet52

Back in December, during one of many recent PM smackdowns by the globalist elite and their lizard-people stormtroopers (aided of course by chemtrails and Osama Fartbongo's secret UN armed invasion force), I posted a commiseration link to Andy Maguire's comments on King World News.

Anyway, user comet52 commented:

Funny, I read that before you posted the link. Somehow stumbled into the mud by accident which I don't usually do. The value in Shanghai might be high because the people there live in a kleptocracy with a failed banking system and a government that can and does devalue one's assets on a whim

As far as gold is concerned, I'm unsure if I've ever clearly stated before that the above is the entire basis of my opinion re China and gold.

I'm generally ignorant about Chinese culture and try to keep my biases out of the thesis, but this is what I gather is the background of wealth management in China:

1. Chinese people consider it vital to prudently save money. They also have a long view of history.
2. China had a few decades of civil war last century. There was also military occupation here and there by the roundeye barbarians and later the Japanese; then consolidation under Mao; then cultural revolution, etc.; I'd assume all this was bad for wealth retention.
3. Modern Chinese banking, while a damn sight better than the anarchy before, has still been typified by a repressive savings rate policy that guarantees losing money to inflation. Meanwhile their stock market is recognized domestically as a crooked game and their WMPs are structured to follow the very definition of "Ponzi".
4. Some Chinese are making a lot of money right now. They want that wealth to go somewhere safe. But not all into Toronto real estate.
5. Chinese people think things are more true when they are organized into five precepts.*

So if you're a newly-rich Chinese communist party kleptocrat, or even just an intelligent working stiff who's saved up a big pile, where are you going to put your wealth? With a long view of history you might conclude that Chinese fiat isn't dependable, equities aren't dependable, bank deposits aren't dependable, domestic real estate isn't dependable, private business isn't dependable.

China is really a loony ZeroHedger survivalist goldbug paradise: a government with a recent historical record (and therefore future possibility) of collapse, confiscation, anarchy, persecution, deprivation and murder. I.e., it really is what paranoiacs like Casey and Sinclair think the USA is.

Gold isn't extremely dependable, but at least it'll always be worth something, it's harder for governments to confiscate, and you can carry a few pounds of it onto a plane and fly it out to your new condo in Toronto.

Thus, above, the entire argument for gold demand in China.

Now, I'm looking at what I just wrote, and thinking.

When these Chinese people with all the money get old, what's going to happen to the price of gold? Age-rollover usually is associated with real estate crashes and bear markets in equities; China is coming up against a huge age rollover in 2015 or so; if gold is being used as the same kind of store of wealth as real estate, then maybe that gold will start to get sold back into the market.

Then gold descends to the marginal price of production, barring any increase in demand from India, Indochina or the Middle East. Middle East demand should drop as the oil boom dies off (have you been following US developments on shale oil and gas?); Indochinese demand drops if a collapse in the Chinese economy takes out their economies as well.

But then if EMs collapse, mining costs go down (cos a lot is mined in the EMs), so the marginal production cost of gold goes down.

That seems like a painting in broad brushstrokes that could just make some money at auction.

So I'm not saying gold is dead; it should see a resurgence in 2013.

But if you feel that this 2015 Chinese demographic rollover story is possible, then it might be good to prepare, no?

Certainly most of the goldbug newsletter writers out there had better start thinking about what they want to do when they grow up. Cos if they don't like how mommy and daddy have been treating them since the Puke of PDAC 2011, they sure ain't gonna like it when they come home one rainy day a couple years from now and find their possessions in soggy cardboard boxes on the lawn, and the locks changed on the doors.

That could happen by 2015, so you'd better start familiarising yourself with tech stocks for when the time comes.

* - Did they nick this from the Discordians, or was it the other way round?

1 comment:

  1. The much feared goldpocalypse is a non-event, outside of Peter Schiff's brain and a few other fever holes. Chinese individuals (along with American outback tea party doomers) will eventually be the last-to-know fish at the global gold poker table, imo.

    And picking gold juniors will become a whole lot harder if the long term trend heads south. All those outfits that Cookie claims should just go away, will probably do so.