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EQ News | Thursday June 22, 2017

Gold In Focus

Gold -- that precious yellow metal with a 5,000-year history of established value and credibility is still accorded poor investment sentiment and trades unfairly, compared to the S&P or any other asset class? For evident reasons, it has been kept low. And who else with an obvious motivation to manipulate gold to its current relative weakness and amass tonnes of it – but China.

That said China’s ambition of wanting to be THE global authority in world finance and trade can never be complete without the gold leverage. For the rules of the game state that you need to have a lot of that precious metal as a standby fund to play. And China does not have sufficient gold yet to secure her seat at the table with the other economic powerhouses.

If you’ve got enough gold, you play with the big boys. And that buys you a bigger voice on the world’s financial stage. At current market rates, the US gold reserve stands at 3% of their GDP. The same could be said for Russia. For Europe, it’s even higher at over 4%. And in China, official numbers have it at only 0.7%.

If a free market were to determine the price of gold sans the “manipulation”, China would fall - crumbling behind most other countries. And if the lid were taken off today, gold prices would skyrocket and the Chinese could never acquire so much fast enough. The second largest economy in the world without a gold standard to back it up will simply collapse any Chinese ambition - and erase all the economic gains they have made in the last 30 to 40 years. Gold is the last straw to make or break China.

This makes it obvious where the manipulation is coming from. But they can never be transparent at this stage of subtle acquisition or the price will rise too quickly. This is where the Western friends come in, to put a lid on prices until China reaches a hedge position.

With China, Russia also needs to be mentioned when it comes to who is amassing tonnes of gold in the world market. And the hedge funds that are now moving quietly into this silent action. After more than a decade of inattention, money managers are again seen boosting their long positions in US gold futures as shown from data from the Commodity Futures Trading Commission in the week that ended May 23.

In the past 3 weeks, Bloomberg indicated below that bullion futures have posted 3 weeks of straight gains – and thanks to the US and European political upheaval; the precious metal is once again becoming a darling for safe havens.

In effect, we now see China, Russia and the big western banks accumulating this yellow bar on its current manipulated weakness. And it has a growing shimmer that is now attracting the eyes of hedge funds too - boosting liquidity. Make no mistake Gold is on its way to regaining its lost monetary status.

We have seen how bitcoin and other cryptocurrencies, which have absolutely no asset backing nor real underlying worth, skyrocket in value. What we have in Gold is a proven asset class with more than a thousand-year solid history. Markets have a tendency to self-correct, sans the manipulation that cannot last for very long. And when that time comes, Gold could easily fetch US$10,000 per ounce.

The writing is all over the wall. And don’t say we didn’t tell you so.