The Gold Digging of China and the Gold Price

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China and gold price have been in the news as of late, because of certain political moves that have decreased the overall price of gold. What has China done exactly and why does it affect gold—a supposedly market-free commodity?

Gold is independent of the market, but some of China’s recent actions have impacted the supply and demand aspects of gold and other metals. Many financial and commodity experts are predicting that China will raise interest rates any day now, which is affecting the gold price. The country also moved up the release of important macroeconomic data, which many believe to be a sign of an interest-rate hike, based on history.

China’s exporting and importing have been doing well beyond expectations, which increases the need for metals in general. News of this is expected to make China raise its interest rates, and perhaps allow its currency to appreciate—something the Obama administration has been aiming for quite a while. The fact that gold price has decreased slightly may be the result of China’s delay, not to mention the threat of interest rate increase. China is battling against inflation and its official bank even raised bank reserve requirements by 50 basis points, which is the sixth increase for 2010.

Another reason why prices have dropped is because of short-term American dollar increases. All of these factors cause the gold value to slightly decrease. However, China’s actions notwithstanding, gold price remains a stable buy. Gold is still a hedge against inflation and a universally traded commodity. The fact that gold increases during recession and depression are perhaps its greatest advantage.

Gold will win and lose a few battles before 2011 comes to a close. This precious element has quite the task, of taking on multiple world economies and also dealing with supply and demand issues. One thing is for sure: you can’t afford to be empty-handed when the economy collapses. Now is the time to start investing in gold.

China is increasing its gold supply substantially. Everyone concedes that gold investment is the only sound strategy to counteract the fall of the world economy. The question is, how soon should you start investing more? For the time being, keep a balanced perspective. Having ten percent of your assets in gold and other precious metals is a start. Talk to a coin dealer today about the price of gold and your investment plans!