Tuesday, January 15th, 2019 MST

China: another reason to buy gold

China’s economy has been in decline most of this decade, and President Trump’s tariffs on China’s exports of goods to the US worsens China’s woes.  It’s stock market is down some 30% this year.

China’s leaders are embracing standard Keynesian moves to ameliorate the situation, starting first with easier credit and expanded tax cuts.  Basically, this means that China, like the United States, is willing to run budget deficits to stimulate its economy.  Since Nixon “closed the gold window” August 15, 1971, loose-money policies have been followed by big up-moves in gold.

For decades, China, having embraced some free-market concepts, has fueled much of the growth in the world’s economy.  It’s purchases of commodities were turned into exportable goods by its low-wage workers.  Supposedly, 40% of the items sold at Wal-Mart are made in China.

China desperately needs to export to sustain its economy.  It has the second largest economy in the world, and any economic decline will have a major impact on the world’s economy.

China is also the world’s largest gold producing country; but, more important, it is the world’s largest gold consuming country and is a major gold importer.

As China’s economy deteriorates and it government turns to Keynesian policies to stimulate its economy, the Chinese people will turn to gold. Unlike Americans, the Chinese do not have to be educated as to the benefits of owning gold.  They have long had an affinity for gold, which when they buy even more gold because of Keynesian policies, the demand will have to be met by still greater imports.

China’s economic woes mean upward pressure on the price of gold.

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