Have you noticed a strange economic phenomenon in the past few weeks? Both the price of gold and the dollar have increased.
Traditionally, that just doesn't happen. Traditionally, when people have doubts about the dollar, they flock to gold, leading to a rise in gold prices and a devalued dollar. Or the reverse is true.
So what's going on here?
China.
Until last week, China was the largest buyer of US treasuries. But that's a lot of exposure to a currency whose future is in doubt. I've always thought it was strange that the largest democracy in the world was being financed by the largest communist state in the world. But China needs to ensure Americans have lots of dollars to spend so it can sell Americans goods and keep its factories running.
And Americans like to consume. So it works out well for everyone. China gets to keep working, America gets to keep spending.
But there's that pesky ideology thing in the way. China and America have issues in contention. For example, China doesn't like the way the Fed is printing money, it devalues their treasury holdings. But it can't not buy more because that would cause the US to default on sovereign debt and make the rest of China's massive holdings worthless.
Not a bad deal for America. Remember: If you owe a little, you have a creditor. If you owe a lot, you have a partner.
So China's only option to exert any kind of pressure on the USA is to play with the value of their dollar. Taking it up, moving it down as it suits her needs. And the only way to do that is to buy and sell Gold.
A couple of weeks ago, China bought gold instead of US treasuries. The slack was taken up in part by Japan. But a good portion will have to be monetized by the Fed. This will lead to an increase in the money supply and a rise in the price of gold.
And that's a good deal for China.
It is also good news for gold exploration companies like the one profiled in PennyStockJockey's newest pick available at [http://www.pennystockjockey.com]. The increased money supply will increase the price of gold and the concurrent inflation will increase the share price of US equities.
And the rise of the dollar? A temporary phenomenon caused by the uncertainty in the Euro due to the overblown fear of countries like Greece defaulting on sovereign debt. If Greece or another EU country defaults, the Euro will fall.
So investors ran to the dollar for shelter since it's at historic lows and gold is at historic highs (although factoring in inflation, its nowhere close). It's a good place to sit while the storm in Europe plays out.
Traditionally, that just doesn't happen. Traditionally, when people have doubts about the dollar, they flock to gold, leading to a rise in gold prices and a devalued dollar. Or the reverse is true.
So what's going on here?
China.
Until last week, China was the largest buyer of US treasuries. But that's a lot of exposure to a currency whose future is in doubt. I've always thought it was strange that the largest democracy in the world was being financed by the largest communist state in the world. But China needs to ensure Americans have lots of dollars to spend so it can sell Americans goods and keep its factories running.
And Americans like to consume. So it works out well for everyone. China gets to keep working, America gets to keep spending.
But there's that pesky ideology thing in the way. China and America have issues in contention. For example, China doesn't like the way the Fed is printing money, it devalues their treasury holdings. But it can't not buy more because that would cause the US to default on sovereign debt and make the rest of China's massive holdings worthless.
Not a bad deal for America. Remember: If you owe a little, you have a creditor. If you owe a lot, you have a partner.
So China's only option to exert any kind of pressure on the USA is to play with the value of their dollar. Taking it up, moving it down as it suits her needs. And the only way to do that is to buy and sell Gold.
A couple of weeks ago, China bought gold instead of US treasuries. The slack was taken up in part by Japan. But a good portion will have to be monetized by the Fed. This will lead to an increase in the money supply and a rise in the price of gold.
And that's a good deal for China.
It is also good news for gold exploration companies like the one profiled in PennyStockJockey's newest pick available at [http://www.pennystockjockey.com]. The increased money supply will increase the price of gold and the concurrent inflation will increase the share price of US equities.
And the rise of the dollar? A temporary phenomenon caused by the uncertainty in the Euro due to the overblown fear of countries like Greece defaulting on sovereign debt. If Greece or another EU country defaults, the Euro will fall.
So investors ran to the dollar for shelter since it's at historic lows and gold is at historic highs (although factoring in inflation, its nowhere close). It's a good place to sit while the storm in Europe plays out.
Source...