Tuesday, April 26, 2011

Globe And Mail Article Worries About High Prices Cutting Into Mainland Chinese Demand

There's a bit of spin in the article, but not of the real gold-skeptic sort. Despite the bulk of it highlighting strong mainland Chinese demand for gold as inflation bites, the headline is "Rising price threatens to break China’s gold fever." What makes this article worth a read is this point:
The country’s stock markets are volatile, and now new government controls are restricting property sales, another traditional target for investment, in hope of driving out speculators.

What’s left, increasingly, is gold, as middle and upper-class Chinese try to protect their savings from inflation hovering around 5 per cent.
In other words, the official squeeze on the housing bubble combined with official encouragement to buy gold has made gold close to the only game in town for protecting against inflation. Had it not been for silver, gold would be the only means.

The only backing for the headline is a quote at the end of the article:
“Housing’s out. I wouldn’t invest in housing now. And gold is getting expensive because people are buying like crazy…I have stock investments, yes, but of course I’m worried about them,” [42-year-old businessman Li Chau] said.

“People’s fear is driving them to buy now,” he continued. “People’s investment channels are narrow and they want to save money, so they buy gold.”

It's a bit of a thin reed for a skeptical headline. Evidently, it's the writer who's gotten the jitters from gold's high price.

That said, there is some reason to be nervous in the short term. Although gold has not enjoyed the parabolic rise that silver has, it's still gone a long way without a pullback.

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