Tuesday, November 30, 2010

Chinese Gold ETF will juice gold bull market

There is a problem in China. There are not a lot of places for the average Chinese person to invest his or her money. Because Chinese people are limited in their investment options they have put quite a bit of money into real estate. They are not allowed to invest overseas, at least not until now. The Chinese government is now going to allow investors in China to invest in a gold ETF that invests in overseas gold ETFs. Kind of an ETF of ETF's. The net result will be the funneling of at least $500 million of Chinese money into an already tight gold market. I am sure this will not be the last of these types of investments. I have for several years believed the Chinese government fully intends to monetize gold at some point in the future. The government has been buying all domestic gold production, about 300 tons last year, and encouraging it's citizens to buy precious metals. As the US dollar becomes weaker eventually the Chinese Yuan will become the reserve currency. A gold backed Yuan would literally make China the world economic super power considering the other options are all fiat based. Here is a link to the Bloomberg article.

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