It makes no sense educating people on why they need gold as part of their investment portfolio, without enlightening everyone about gold market manipulations that exist at the world stage. This will be broken down into what layman can understand, this article will let you know how you (small buyers) can protect yourself against big players.
Gold Price War
The price of gold is suppressed for certain reasons, it is allowed to go up for economic benefits too.
What Is The Interest Of US And China In Global Market?
A lot of analysts think that the US Fed is trying to drive down gold price in order to strengthen dollars, this is not true, on the contrary, the Fed wants weaker USD to achieve inflation. More dollars is required for US imports, this is the inflation target of the Fed. As a net importer, cheaper dollars means that people will pay more on imported goods in the supply chain, good enough to cause inflation. Read more about why governments need inflation here.
Note: when more dollars are required to buy 1 oz of gold, the dollar is weakened.
Weaker Dollar Is Required But Not In Uncontrollable Manner
Another question is; if the US want cheap dollars, why is it hard to get it?There are a lot of opposing forces that make this difficult to accomplished, one is a currency war between Europe, America, and China. The alliance between the US and the Chinese government, this is due to technology, deleveraging, debt and deflationary tendencies from different demographics. The government is able to pay the debt through currency devaluation, it is much easier this way. Therefore, a lot of countries wants to devalue their currencies, it is practically impossible for two currency pairs to be devalued simultaneously.
Fed has no fuss with an increase in dollar value of gold, only that it must be slow and steady in a favorable order.
For instance, the dollar price of gold almost hit $2000 per ounce in 2013, getting to this point would have a psychological implication. It next stops maybe $3000/oz which is not favorable to the US economy.
The gold value was getting out of control, it is paramount that the Fed use all financial tools to manipulate dollar price when it finds it necessary.
Let's Talk About Major Players
Gold bar
Look at this paradox, the Chinese government wants low price gold. I heard you ask; why would the country that has so much gold desire to suppress its value? For China to be at par or above the US in terms of gold reserve, several tons of gold will be needed to fill this gap. China wants to buy more at a lower price, hence the gold price manipulation is required.
Another funny scene is that the USA Treasury find it important to respect Chinese's wishes because China owns over 4 trillion dollars of US treasury notes. The United States desire inflation and China will not feel comfortable with the gold price increase, because it will reduce the value of its treasury holdings. If the United States go all out to increase the gold price, China will want to liquidate her position, thereby causing a sharp increase in interest rates- the USA stock market will sink within a short time. The United States Fed is not prepared enough for this consequence.
Why Is China Buying More Gold?
On the contrary, the Chinese government is not loading up gold to embark on the gold standard, rather, the country wants to have the capacity to hedge it treasury position. Beyond this, the IMF believes that global rebalancing of gold between the East and West is needed, but in a more orderly way.
Now, when is the manipulation going to end, what can you do to stay safe as investors?
Succeeding Over Manipulation
Gold Price War
It is easy to conclude that you cannot win in this fiercely contested market, you may have said it to yourself "let me just chill and watch from the sideline, it is not worth the risk of participating in the gold market." Yes, to a large extent, you are correct. Historical manipulators either get tired or fail woefully. They may run out of physical gold to continue their activities, or inflation anticipations send the price up to an extent that the government cannot control price any longer. At this junction, the game ends. Manipulation failed in the 1960s, the entire London Gold Pool could not hold it down. Gold price went up in the 1990s and early 2000s.
It attained $1900 in 2011 and no one could prevent it from getting to the ATH (All Time High).
Manipulation has taken another turn, and paper gold is the most used tool for this purpose, even this requires a handful of physical gold.
In 2013, GLD let go of 500 tonnes of gold, leaving it with 800 tonnes, another similar dumping will reduce manipulation or make it almost impossible.
Another end game is the moment when China has an equal voice during the next Breton Woods kind of meeting, this will bring lots of confidence in the international monetary system.
By the time that China can boost of 8,000 tonnes of gold, the two countries can feel a level of protection. Gold value can go up while dollar devaluation starts.
To Wrap It Up
As an investor, understand the price dynamics, the power at play and how manipulations work on the global stage. Having a clear picture of the role of physical gold gives you the rationale for keeping gold in your portfolio, without getting scared of it short term price movements. You have to wait no more if you have disposable income, why not save part of it in gold, it is one of the best asset class that can hold it down against inflation when the chips are down.
I would love to read your view about this topic, kindly leave a comment. I am going to reply as soon as possible. You are free to ask me any question too.
Cheers!
Posted from my blog with SteemPress : https://kowaste.com/gold-global-manipulation-usa-and-china-war/gold-is-money/