December 06, 2010 – Even more good news for gold bullion investment is coming out of China lately. Although their imports for the first 10 months of 2010 are five times those of the entire previous year, it is what is behind those imports that is of real interest.
China has notoriously kept their currency out of the global exchange, but as the country enters the next phase of emergence that will have to change. The Chinese government, however, has realized through its efforts to control the domestic economy with currency manipulation that opening the Yuan to trade could have disastrous repercussions. Recently China has made several sweeping changes that suggest the country is on a path to adopting gold as a secondary currency.
One of the biggest changes is the easing of restrictions on private holdings in gold. In fact, that is being encouraged and now even investment in foreign gold has been allowed. The Chinese are by nature extremely frugal and they save 40% of their earnings. But China’s incredible growth has spawned the creation of an immense middle class, and those savings have swelled bank reserves and fueled inflation. The government responded by placing a cap on interest rates, but that resulted in negative returns on savings.
The Chinese have valued gold as the one true measure of wealth for centuries and they never have been comfortable with paper currency. As the government develops the infrastructure required to handle the exchange of private gold there will very likely be a major transition from paper to gold among the people.
China is arguably the most prominent architect of global economics, and at the very least what they do bears close attention. Quite possibly we are witnessing the first steps towards a new global monetary system – and that bodes very well for gold bullion investing.
