Understanding the Chinese Gold Rush, Part II
By Craig R. Smith
Dec 26, 2006
[Image: Children decorate a Christmas tree with golden piggy banks to celebrate the year of the golden pig in 2007.]
The most dramatic change in the global landscape in 2006 has been the recognition that China's 1.3 billion people are fast becoming the world's piggy bank, literally, as they prepare to celebrate 2007: The Year of the Golden Pig. What can we learn?
Year of the Golden Pig
"From Monday (Christmas Day), The Shanghai Gold Exchange lowered the size limit for trading in gold bars from one kilogram to 100 grams in a move to make trading in the precious metal more accessible to small private investors. The Year of the Pig (which starts on February 18th on the Gregorian calendar), suggests a year of good fortune to the Chinese and in 2007 this coincides with a metals year on the five year elemental cycle tieing in with the five major planets, and the metal associated with this is traditionally gold. So the combination of pig (good fortune) and metal (gold) might well lead to additional private investment in the precious metal once the New Year starts – and this should be made easier by the much lower threshold of entry," reports Mineweb.com.
ChinaDaily reports last week... "Greeting the upcoming 'Year of the Golden Pig' in 2007, domestic banks are enthusiastically unfolding gold marketing strategies, while customers are busy buying up gold for their financial portfolios with the New Year just ahead."
Goo Hyun-su of Shinhan Bank's Product Development Division stated, "With the price of gold rising due to the recent weakening dollar, interest in gold has increased. Moreover, the preference for gold jumped with the next year being the year of the golden pig."
China's average savings rate is up 17%, according to China.org..."Data recently released from the National Bureau of Statistics showed that the saving deposit of urban and rural citizens in China has reached 9.43 trillion yuan, up 17.1 percent from last year, with deposit growth rate beating income growth."
"This indicates that officials’ call for increasing spending have been ignored to a large degree. People from different sectors of society hold different philosophies about consumption, and some economists believe that spending is not a way to stimulate the national economy. Contrary to the common assumption that people in the high-income group spend more, a survey shows those families intend to spend less."
Ironically China’s 2006 gold consumption also grew by an amazing 17%. Imagine that. The higher the income the less they intend to spend and the more they intend to save largely in gold. Sadly, this is exactly opposite of what American's have been doing, as gold consumption in the U.S. declined 10% in 2006.
I would like to suggest that every American take a lesson from the Chinese “Year of the Golden Pig” by starting their own personal golden piggy bank. Instead of viewing our homes as a piggy bank, we must diversify our resources into assets that will stand the test of time – like gold and silver.
America’s debt-based money system is slowly threatening to strangle our future generations with debt -- because we've not learned, nor obeyed the moral mandates of holding honest money and shunning debt.
One nation under debt
This year the official U.S. national debt topped $8.6 Trillion – up from $5.8 Trillion in 2001. That’s more new dollars than minutes of time since God created Adam and Eve to walk upon the earth!
Worse yet, David Walker, Comptroller of the US, reported on 12/15/06 that the U.S. government’s total reported liabilities, including social insurance commitments such as Social Security, Medicare, and other fiscal exposures now total approximately $50 trillion! That's four times the nation’s GDP in fiscal year 2006, up from about $20 trillion, or two times GDP in 2000.
Dr. Chris Martenson’s conclusions in a recent column, “The U.S. is Insolvant,” are threefold;
1. There is no way to ‘grow out of this problem’ -- the US financial position has deteriorated by over $22 trillion in only 4 years. The problem did not ‘get better’ as a result of the excellent economic growth over the past 3 years but rather got worse and is apparently accelerating to the downside.
2. The future will be defined by lowered standards of living -- the insolvency of the US will minimally require some combination of lowered entitlement payouts and higher taxes.
3. Every government facing this position has opted to “print its way out of trouble” -- In the simplest terms this means you & I will face a future of uncomfortably high inflation, possibly hyperinflation if the US dollar loses its reserve currency status.
In August 2005 I warned WND.com readers that unless Americans make a radical change in our "living-on-borrowed-money" lifestyle (personal and governmental), and oil prices start falling soon, and we begin to save instead of consuming -- I expect we’ll witness the collapse of the U.S. dollar by 2010.
Today the U.S. national savings rate is just about zero -- ranking as one of the lowest among all other major industrialized countries. We are a nation of consumers who never seem content unless we are spending, as promoted by both the government and private sector together. The bottom line is that we must all get serious about saving for the future as the Chinese do, or face the consequences individually and nationally.
U.S. deal making with China?
U.S. Treasury Secretary Henry Paulson recently visited China to encourage Chinese leaders to change their economic strategy to help achieve a more balanced trade relationship with the United States. Ha! With nearly a $trillion in U.S. dollar reserves, the Chinese are in no hurry to "balance trade".
With Democrats in control on Capitol Hill, I expect China bashing may heat up next year, especially if the U.S. economy takes a turn for the worse. In fact the biggest news from last week's China trip was a deal between the Chinese government and Westinghouse Electric Co. to provide technology for four new nuclear power plants in China.
Goldmoney.com founder James Turk states it well, "The outlook for the U.S. dollar is worsening, which is a conclusion that can also be reached by looking at what happened during last week's trip to China by Treasury secretary Paulson and Fed chairman Bernanke. They came home empty handed, without any concessions from the Chinese or commitments by them to help the United States by continuing to hold dollars, which the United States is recklessly spewing throughout the world as a consequence of its ongoing trade deficits."
The irony is that a stronger Chinese yuan will actually hurt the dollar further. So the U.S. is asking for a policy that will be increasingly contribute to the weakness of the dollar, which is already just few headlines away from oblivion. Amazing! Little wonder why the world is increasingly turning toward tangible assets as real money.
Saving real money boosts morality
As we look forward into 2007, the future of gold has never been brighter. I'm speaking not just of gold's profit potential, but rather of its universal safety, liquidity and maintenance of buying power over time.
A twenty-dollar gold piece has always maintained buying power -- regardless of what happens to paper currencies. You could buy a fine men's suit with a $20 gold piece fifty years ago (which cost only $20) and you can still buy a fine suit today for a $20 gold piece (about $700). This illustrates why gold must be the foundation of your strategy to stay ahead of the dollar's two-generation decline.
Earning, saving and giving are the hallmarks of maturity and morality. Loafing, spending and taking handouts are the hallmarks of an empire in decline. Which road will America take as we write out our 2007 New Year's resolutions?
China.org explains why the Chinese shun luxury... "Some experts believe that the emphasis of luxury consumption by the rich is not a good idea. Apart from causing tremendous waste, their luxury lifestyle may have a negative influence on social morality. Living in extravagance is against the traditional Chinese virtue and it runs contrary to the current national condition."
A few tips to get on track in 2007:
1. Live within your means. Establish a workable budget and begin to pay off your debt ASAP. Remember Prov. 22:7 "the borrower is a slave to the lender."
2. Begin to save at least 10% as well as supporting your favorite charity. This means learning to live on 80%-90% of your income instead of 110%, which is the national average.
3. Diversify your reserve capital into 7 or 8 areas, beginning with the least risky. Everyone should have at least 6 months income in savings to cover any short term emergency that could arise. Everyone should own some honest, constitutional money -- gold and silver coins.
My hope is that we will all heed immoral these words J. Botherton: "My riches consist not in the extent of my possessions but in the fewness of my wants."
Have a Happy and Blessed New Year in 2007!
(Our gift to you is a FREE "Future of Gold 2007" information kit.)
China makes gold more accessible to small investors -Mineweb - 12-26-06
"Chindia" Gold Rush on CNBC - 11-10-06
CHINESE GOLD RUSH, Part I - 1-15-04
THE UNITED STATES IS INSOLVENT – 12-17-06
2006 Financial Report of the United States Government
ONE NATION UNDER DEBT – 8-8-05
Banks Busy with 'Gold Marketing' - 12-19-06
China’s 06 gold consumption to grow 17% - 12-6-06
Money: Not Burning a Hole in Chinese Pocket - 4-10-03
Savings and Investing - True-Wealth.com - 5-5-95
DISCLAIMER: All of the provided information is believed to be accurate, however errors are possible. The opinions in the Commentary section do not necessarily reflect the opinions of Swiss America. Past performance of any investment is no guarantee of future performance. All investments have risk.