Investing in Gold Ahead of the Chinese

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by Richard Daughty: The
Derivatives Market Monstrosity



There are
a lot of things in this world that I do not understand, and perhaps
it is because of this persistent befuddlement that, for some mysterious
reason, I think it is Highly, Highly Significant (HHS) that the
Chinese Gold & Silver Exchange is planning “a first”;
an international gold contract denominated in renminbi.

Agora Financial’s
5-Minute Forecast notes that “Right now, the Hong Kong-based
exchange settles all its trades in Hong Kong dollars,” which
should be enough to get the job done, you would think.

So why a new
international gold contract denominated in Chinese renminbi? I don’t
know, which is not unusual because I actually know so little about
anything, but The 5 says, “Adding renminbi to the mix
could boost the exchange’s trading volume by 20%, to a daily
total of $6 billion,” which I assume means that commissions,
fees and money made by middlemen would increase, for one thing!

My shallow
cynicism aside, all of this comes at a time when “skyrocketing
demand for gold in China” is evident in that Chinese imports
of gold through the first 10 months of the year of this year total
to more than 209 metric tons. The total for all of 2009 was, by
contrast, just 45 tons.

So 209 tons
of gold is a hefty 500% increase in buying, which is hard to dismiss
out of hand, much less when considering that this may, or may not,
have something to do with the fact that “Chinese regulators
have approved the first mutual fund to invest in gold-backed ETFs.”

And it is even
harder to dismiss when you notice that there is nothing about Chinese
trusting gold for the last few thousand years or so and so what
in the hell did you think that they would spend some of their rapidly
rising incomes on, or that commentary on buying silver is so suspiciously

I come to the only conclusion that makes sense; buy gold, silver
and oil ahead of the Chinese, who are buying them ahead of the Federal
Reserve creating so much money in quantitative easing 2 (QE2), which
makes it all so easy that you, the Chinese and I all have to exclaim,
“Whee! This investing stuff is easy!”

And it becomes
especially easy, and especially obvious when, as part of a recent
Congressional frantic move to get more money into more hands so
that these mysterious hands will spend it and thus, somehow, reanimate
a dying economy where government spending is half the economy and
debt-financed consumption is the other half, a tax break was passed
so that the 6.2% Social Security tax that workers must pay on their
incomes will be reduced to 4.2%!

A $45,000 income
will thus be increased by $900! I assume that the Medicare tax and
the employer’s matching 6.2% tax will remain intact and due,
so that employment will now be taxed at a total of 13.3% instead
of the 15.3% of the last few years.

And I assume
that the $900 “found money” will be reduced by the entire
sum being taxed as ordinary income at the marginal rate, instead
of the previous 50% being taxable, but it’s still a nice piece
of change!

And it will
be doled out, paycheck by paycheck, increasing the fabled Keynesian
“propensity to consume,” as opposed to a lump-sum remittance
that results in a higher Keynesian “propensity to save,”
which is at the bedrock heart of the ridiculous econometric theory
to which the asinine Federal Reserve ascribes.

And the European
Central Bank, and the Bank of Japan, and central banks everywhere.

In short, there’s
more money, more money, more money, more money, more money and more
money, everywhere you look, making the decision to buy gold, silver
and oil against such terrifyingly inflationary floods of money even
easier, so that, “Whee! This investing stuff is easier than
I originally thought earlier in the paragraph!”

30, 2010

Richard Daughty (Mogambo
Guru) is general partner and COO for Smith Consultant Group, serving
the financial and medical communities, and the writer/publisher
of the Mogambo Guru economic newsletter, an avocational exercise
to better heap disrespect on those who desperately deserve it. The
Mogambo Guru is quoted frequently in Barron’s, The
Daily Reckoning, and other fine publications.

Best of Richard Daughty

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