Telegraph UK's Ambrose Evans-Pritchard discusses the idea that gold is now potentially a winning bet with minimized downside, now that the "Beijing Put" is on the table.
Evans-Pritchard recently had the opportunity to spend a fair amount of time with Cheng Swei, who was until recently, the Vice Chairman of the Communist Party's Standing Committee, at the Ambrosetti Workshop, a meeting of global strategists and politicians at Lake Como, Italy.
Here is an excerpt:
Mr Cheng was until recently Vice-Chairman of the Communist Party's Standing Committee, and is now a sort of economic ambassador for China around the world - a charming man, by the way, who left Hong Kong for mainland China in 1950 at the age of 16, as young idealist eager to serve the revolution. Sixty years later, he calls himself simply "a survivior".
What he said about US monetary policy and gold - this bit on the record - would appear to validate the long-held belief of gold bugs that China has fundamentally lost confidence in the US dollar and is going to shift to a partial gold standard through reserve accumulation.
He played down other metals such as copper, saying that they could not double as a proxy currency or store of wealth.
"Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not stimulate the market," he said.
In other words, China is buying the dips, and will continue to do so as a systematic policy. His comment captures exactly what observation of gold price action suggests is happening. Every time it looks as if the bullion market is going to buckle, some big force steps in from the unknown.
Bottom line: The "Beijing Put" is part of a larger symphony of intervention that keeps the US dollar balanced. The Fed's Quantitative Easing has made China's participation a matter of wealth preservation.
That makes gold a very interesting trading opportunity, if not complex. This is likely to go on for quite some time. As a longer term bet on inflation, however, gold prices rise as the real supply itself is finite. The question remains - Where will the gold come from?
Read the whole article here.
