Monday, January 2, 2012

China, India, Kazakstan and Mexico Move Into Gold

Why are the gold policies of the developing world fundamentally different compared to the gold policies of the West?

Chris Berry: Well, let’s take China. I mentioned earlier that as recently as the 1930s, China was on a silver standard. The idea of sound money is not a foreign one to the Chinese. China of course has $ 2.5 to 3 trillion of foreign reserves that consists predominantly of paper fiat currencies.

The Chinese obviously realize this and that’s why they are diversifying out of dollars and Euros and into hard assets such as gold. Just as an example, in the year 2000 China was responsible for 6 percent of global gold bullion demand. Ten years later, in 2010, they were responsible for 18 percent, and that will increase allegedly again in 2011.

Another example is India, which is the largest importer of gold bullion in the world. Last year they imported 958 tons. This year they will import more than 1000 tons. China and India have to support their populations with sound money. Paper currencies will not rule the day – they never have.

Additionally, take a look at the recent actions of the Central Bank of Kazakhstan that has exercised what is known as “priority right.” That gives the central bank the right to buy all domestic gold production starting on January 1st, 2012.

One final example is Mexico. In January of 2011 they imported 7.3 tons of gold, in July of 2011 they imported 100 tons – it increased in seven months by more than a factor of ten. These are just two relatively obscure central banks in the developing world that are running towards gold because they seem to have realized the folly of fiat currencies.

1 comment:

zhou said...

For many years it has been absolutely crystal clear to some of us (sadly a very small minority) that many major sovereign nations are bankrupt as well as the world financial system. Banks are only surviving because they, with the blessing of governments, are allowed to value trillions of dollars of toxic and worthless assets at full value. And on top of that there are more than $1 quadrillion outstanding in derivatives. These are outside the banks’ balance sheets and there are virtually no reserves against them. The banks are netting the value down to virtually nothing and then applying a miniscule reserve against this net amount. First of all, the netting is only valid when the counterparty pays. When there is a counterparty failure, which is very likely in the coming financial collapse, gross remains gross and the $1 quadrillion remains $1 quadrillion. Secondly, a major part of the derivatives are worthless or not protecting the investors as we have seen with for example Freddie Mac, Fannie Mae, Lehmans and lately MF Global. MF Global had bought CDs to hedge their investment in Greek debt. But they hadn’t understood what they had bought and it turned out it offered no protection at all.

The “final or total catastrophe of the currency system” will occur as a result of the QE or unlimited money printing that will very soon start in the EU, USA, UK, Japan and many more countries. And this currency destruction will lead to hyperinflation as I have stated for many years. Throughout history, substantial government deficits leading to money creation or printing have always been the cause of hyperinflation. Because hyperinflation is always the result of a collapsing currency and not of excess demand.

To any thinking individual, it is totally incomprehensible that governments and central banks believe that an insolvent world can be saved by debt issued by bankrupt nations and then bought by the issuers themselves as there is no other buyer. This is the perfect recipe for self-destruction and “total catastrophe of the system.