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Reasons Why China Wants Its Citizens to Own Gold and Silver

Commodities / Gold and Silver 2012 Aug 27, 2012 - 12:39 PM GMT

By: Dr_Jeff_Lewis

Commodities Due to China’s huge size, its developing economy is having a growing influence on the global economic system.  One commodity that has been particularly strongly affected by Chinese popular demand is silver and other precious metals like gold.

Not only has the Chinese government been moving toward holding precious metals in reserve as an alternative to paper currencies like the U.S. Dollar, but it has recently also encouraged its citizens to own precious metals as a way to store their wealth in a valuable physical asset.



The following sections will discuss at least three reasons which come to mind that may be behind this official Chinese policy switch.

Reason #1: Controlling Inflation as the Chinese Economy Lands

Monetary policy is often aimed at keeping the population at ease, 'as they ease'. To help ensure a soft landing for the Chinese economy means assuming an inflationary monetary policy.

Contrary to popular belief, controlling inflation is not as easy as one might think, largely because doing so boils down to managing perception, confidence and belief, and these things can be very difficult to rationalize.

The Chinese economy still needs to produce before the Chinese people can consume. With economic production elsewhere in the world still lagging far below Chinese levels - especially outside Asia - the supply of goods for the Chinese to consume is dwindling.

Reason #2: Collectively Increasing the Nation’s Supply of Precious Metals Without Direct Buying or Spooking the Markets Higher

China still lags considerably in its official gold reserves, and to increase them in even a small way could induce a market panic that would push the price of gold substantially higher.

By allowing the huge Chinese population to accumulate precious metals — and even officially promoting ownership of precious metals — this creates a domestic supply that could even be confiscated, if deemed necessary by Chinese authorities.

Reason #3: China’s Changing Leadership

China is currently undergoing the first ‘power transition' in the ruling communist party that has been made in the context of China being a major global economic power.

The world has never experienced this type of change in leadership in an economy that accelerated to become so large over such a short period of time.

This comes also at a time where uprisings are occurring all over the world, most visibly in the Middle East, though imminent in the EU.

For centrally planned economies, monetary intervention remains the only hope for quelling the potential social and political unrest. If sentiment from the recent U.S. Federal Reserve FOMC minutes is any indicator, it looks increasingly likely that they will comply sooner rather than later.

Against the backdrop of rising world food prices, and a clear economic slowdown, China may be forced to follow suit, at the risk of triggering economic and social unrest in this precarious political transition.

One way of keeping the people quiet is to allow them some alternative to paper currency to help them feel more economically secure, and precious metals, which have long been an intimate part of the culture, provide exactly that sort of security for the Chinese.

For more articles like this, and to stay updated on the most important economic, financial, political and market events related to silver and precious metals, visit www.silver-coin-investor.com

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

    Copyright © 2012 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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