China can't afford to let gold or silver price slump
Chinese state endorsement of gold and silver as good investments means the country can no longer afford to let precious metals prices drop by any significant amount.
Author: Lawrence WilliamsPosted: Wednesday , 09 Sep 2009
LONDON -
With Chinese state institutions hawking gold and silver to the general populace as a good investment (see China pushes silver and gold investment to the masses) - the latest news on this front being that the biggest Chinese bank, the Industrial and Commercial Bank of China (ICBC), is setting up a special precious metals department to handle growing investor demand for gold and silver within the country, the corollary is that therefore the country cannot afford to let precious metals prices fall substantially and thus alienate millions of its citizens who have been taking state advice to buy them.
In a Reuters report the ICBC is quoted as saying ""China is the world's largest gold producer and the second-biggest gold consumer, and Chinese always have a custom to keep gold as personal wealth. China's gold market is growing rapidly and has a huge potential with the growth of individual incomes." Surely yet another endorsement of gold as an investment by a Chinese state concern?
And China certainly has the power to manipulate the gold price in ways maybe not undreamt of by GATA which has long believed that there has been gold price suppression by western governments, central banks and financial institutions. This time the boot could be veritably on the other foot.
The mere news that China is moving more gold into its official reserves would boost the gold price. And the likelihood is that the country is already doing this - (seeChina's hidden gold purchase policy ) - it only has to let it be known officially, thus turning speculation into fact! Even news that a relatively small amount of gold has been moved into official reserves will likely move the market in a positive direction.
Chinese disenchantment with the dollar as the world's principal reserve currency has been apparent for some time and the huge trillions of dollars overhang in the country's reserves are already seen to be being reduced by whatever means possible - notably by the Chinese Sovereign Wealth fund CIC and other state bodies buying into western resources, property and other companies it sees as strategic investments (see Chinese sovereign wealth fund dumping dollars for strategic investments like gold). It is thus logical that at least much of the country's domestic gold production - and China is now the world's largest gold producer - is already finding its way into the state's coffers.
Recently gold has been moving up and with perceived weakness or strength in the dollar with the general consensus that the overall pattern is likely to be upwards for gold and downwards for the dollar. But, China is likely to be a much more important mover of the gold market in the medium to longer term. ‘Losing face' is an important aspect of Chinese psychology and if millions of investors lose out because state-promoted investment in precious metals is not borne out this would be a massive government loss of face and one which is certainly not beyond its capabilities of not allowing to happen.
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