Archives - Business: Page 20
Author: paul carson (Wed Feb 28, 2007 8:22 pm)
Title: BUSINESS
Beijing bureaucrats have been wagging their fingers at currency
speculators
for months. On one side of this spat are politicians who only get to
stay in
power as long as the yuan is low and China can churn out cheaper goods.
Full employment means building a city the size of Seattle every month.
Less
than full employment means social turmoil.
The choice for a Beijing politician is stark.
On the other side are currency speculators who believe the yuan should
be
higher. To force it higher--and reap many billions in overnight
profit,
these speculators have been buying yuan--and often parking it in highly
speculative real estate deals.
The speculators' game plan--learned in the 1992 attack on the British
pound
and the staggering attack on the Japanese yen in the 1970s--presented a
clear
and imminent danger.
And by striking out at speculators this week, Beijing won a
round--that's for
sure.
========================
How This Relates To Gold
========================
The speculators will be back, make no mistake. And, for sure,
investors will
again reap profits from riding in their wake. But as prudent
investors, we
must never forget the power of Beijing to do whatever it takes to
maintain
control of China's currency.
And--you guessed it--that is where gold comes in.
A trillion in foreign currency reserves: That's a lot of dollars.
Especially when the value of a buck is declining almost every day.
Beijing
has been clear: They must diversify their resources. Not only to
protect
itself from a faltering greenback, but also from those pesky currency
speculators.
And gold is one place where Beijing is crucially underexposed.
According to the IMF, China holds just 1.4% of its total foreign
exchange
reserves in gold. The average is 5% worldwide.
Beijing's decision to rebalance its reserves would create a stunning
gold
bubble. To achieve a protective 5% gold reserves position, China would
have
to buy almost a year's global gold production!
So even a few percentage-points shift to gold could instantly create a
supply
crisis, forcing gold up to historic highs, close to $831!
Indeed, gold futures have been soaring in recent days
_________________
grow and be kind