Heavy Metal Fever

Gold prices jumped more than five percent just on Thursday to a one-year high as stocks experienced even deeper losses. Precious metals across the board have had something of a price renaissance with silver prices up thirteen percent for the year. Platinum and palladium also experienced substantial gains. Gold futures are also up, which provides upward pressure on prices, at least through the term of the current contracts. Gold is up sixteen percent on the year and we’re just getting warmed up.

Guess Who Else is Buying?

They’re doing their best to keep it quiet, but the Chinese have been on a massive gold-buying binge since 2010. Yet government official figures show only marginal increases in the nation’s gold reserves, which makes sense if they’re trying to accumulate gold without pumping up the price. What exactly China is doing with all that gold remains a mystery but experts agree they’re buying substantially larger amounts than they’re willing to admit publicly.

So now China and Wall Street, which just a few short months ago was insisting the investment world was so over gold and precious metals might be permanently out of favor, are both sprinting towards this universally venerated tangible asset.

Strange Bedfellows

It seems odd and not at all coincidental that China and Wall Street would both be accumulating gold. They are, after all, two groups almost diametrically opposed on every philosophical and political subject except making money. When such radically different groups both agree on a course of action, small investors should pay attention. At least some of you are on top of things as the U.S. Mint is reporting sales of Gold Eagles are up fifty three percent from a year ago, while sales of Silver Eagles are up nearly eight percent.

Financial Sector Worries Driving Buying

The big economic news right now is the meltdown in the banking and financial services sector, happening almost simultaneously in the U.S. and China. That prompted Chinese authorities to impose restrictions on how much currency can leave the country. That fear of a banking collapse and credit freeze is prompting the billionaire class, on both sides of the Pacific, to move heavily into gold.

While China doesn’t report its gold holdings, Hong Kong does. Recent figures show China is consuming nearly forty percent of all the gold coming out of the ground. As CNN reports, “Hong Kong data alone show that China went from importing just over 100 tons of gold in 2010 to just under 1,000 tons last year.”  Much of it is ending up in the vaults of China’s billionaire class but the volumes of gold, thousands of tons, are far more than even gold-hungry wealthy Chinese could accumulate. There is speculation that much of it being shuffled off under the table to the mainland, part of the undeclared gold volume piling up in China’s financial system.

One thing to remember when financial analysts are suggesting that Wall Street and China are accumulating gold as a “hedge” against a future banking crisis is that is almost certainly only partially true. Only one quality unites groups as diverse as Wall Street and the Chinese government and that’s the desire to make money. If billionaires in China and the U.S. are stocking up on gold, it’s for profit, not just protection. They want to get in quickly and quietly and grab as much as they can before wind of their spree drives up prices for the rest of us.  Ah, greed…the thing that really unites mankind…

Will Granderson is a regular columnist for Goldco Precious Metals writing on finance, precious metals, and gold as an investment and in popular culture.

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