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Wealth Preservation in Gold

Wealth Preservation in Gold

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Published by: richardck61 on Oct 07, 2011
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 old will continue rising in value overthe coming years for one reason: Theprimary buyers are purchasingphysical gold for wealth preservation, and
there simply isn’t enough physical gold to
satisfy their appetites. The recent pullback was by no means the bursting of the gold bubble.Bubbles are characterized by months ofextended exuberance and consistently higherhighs
not the two- and three- hundred-dollar
corrections we’ve seen twice in the past few
weeks. Such pullbacks are healthy as theyindicate gold has much, much farther to go.Those who buy gold for wealth preservationare happy. Gold has outperformed all otherasset classes for most of the past decade (
Figure1
). As other asset classes, such as bonds,currenciesand stocks, become morepositivelycorrelated toeach other,goldcontinuesmoving inthe oppositedirection andthereforecontinuesserving itstrue purposeof wealthpreservationeffectively.For the half of the world that will be
responsible for gold’s eventual five
-digitdestination
the Chinese, Russian, MiddleEastern and Indian buyers
gold is doing its job. They are far less concerned about short-term price swings. Their distrust of fiatcurrencies has not abated just because the UScame up with yet another plan for extending
the dollar’s hegemony—
the latest being anattempt to flatten the yield curve between long-and short-
term bonds through the Fed’s“Operation Twist.” Many of these people
remember how currency debasement can
destroy wealth. The world’s largest gold
 buyers, the Chinese, experienced hyperinflation between 1947 and 1949. This is still fresh intheir minds.
G
Demand for Wealth Prese
rvation Ensures Gold’s
Retreat is Temporary
October, 2011 by Nick Barisheff
 
2 BMG Article: Demand for Weal
th Preservation Ensures Gold’s
Retreat is Temporary
As the aging population, outsourcing and avariety of other irreversible trends converge,growth slows
yet growth is essential to ourcurrent economic structure, and currency must be created to compensate for this slowinggrowth. Ultimately, Western central bankershave no other choice but to continue printingcurrency and, through this act, debasing itsvalue.Despite Federal Reserve Chairman BenBern
anke’s recent assurances that inflation will
remain at two percent, real inflation, that whichis determined by measuring the original basketof goods before they began substitutingexpensive items for cheaper ones, will continuegrowing. ShadowStats measures this original basket of goods and puts real inflation at about11 percent. Inflation is caused by currencydebasement. Gold is the best indicator of trueinflation because there is a limited supply of itand more dollars/euros/pesos chasing the samelimited supply makes gold appear to rise inprice.As the gold holders of the East probably realize,gold is not really rising in value. It is holding itspurchasing power much as it has for the past3,000 years. Currencies are falling in purchasingpower against gold. This implies that gold canrise as far as currencies can fall and, since thereis no alternative but to continue printingcurrency to compensate for slowing growthand rising entitlement payments, gold isdestined to rise much higher for many years tocome.Gold will continue to rise until the economy istruly healthy again. Talk of deflationarypressures reversing the course of gold is ashort-term, Western assessment. Of course, as
we’ve recently seen, when the stock market
crashes people sell their winners to covermargin, and lately the big winner has beengold. Last week the gold market saw stoplosses, margin calls, raised marginrequirements and a rising dollar, so thecomputers that do most of the trading thesedays sold on overdrive.The Eastern buyers, as well as sophisticatedWestern investors, are happy with pullbacks asthey allow them to buy more gold at attractiveprices. The Chinese Central Bank has publiclystated that it plans to raise reserves from 1,100to 6,000 tonnes of gold. Unofficially, they havestated 10,000 tonnes. They think in terms ofdecades, not nanoseconds like Westernspeculators. The Chinese governmentencourages its citizens to put five percent oftheir savings in gold. They are developinginfrastructure to make gold ownership as easyas possible and to make the country the mostgold-mining-friendly country in the world. Infact, they now lead the world in goldproduction. For those who like to compare ourcurrent gold market with that of the late 1970sit is well to remember that the Chinese, and
most of today’s developing countries, were not
even participants at that time.Perhaps the most significant development ofthe past decade, and one that has gone virtuallyunnoticed in the West, is the Pan Asian GoldExchange (PAGE) to be hosted in KunmingCity, Yunman Province
the gateway to all ofSoutheast Asia. This is a game-changing event
that is part of China’s five
-year plan to changethe entire face of the gold market. In the west,100 ounces of paper gold are traded for everyounce of physical. The PAGE will be the polaropposite of this. It will have a 1:1 leverage rate between the renminbi and gold. This perhapsreflects the Chinese distrust of gold derivativesand paper currencies. In a recent Forbes article ,
titled “The Chinese Mean To Control TheGlobal Gold Market,” author Robert Lenzner
makes the point that this is the plan.Of course, gold has a long history of moving towhere things are made and, like Westernmanufacturing jobs, gold is moving east. ThePAGE is scheduled to open to the 320 millioncustomers of the Chinese Agricultural Bank latethis year and to the rest of the world in 2012. Asit does, the PAGE will appeal to gold buyerswho prefer to trade in a liquid physical marketover a paper market. It will increase the

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