China & Russia Buy Bullion as Protection
BY PETER COOPER
June 27, 2012
Consumers made the most of the dip in the price of bullion and mainland China’s gold purchases via Hong Kong hit a record 101.7 tonnes in April, up 62%, reported Bloomberg.
Meantime, the Russian central bank has again increased its gold reserves by 500,000 ounces. Former Russian finance minister Alexei Kudrin said that a full-blown economic and financial crisis in the euro zone is inevitable and will develop within a year.
Russia is clearly buying gold to protect the ruble from devaluations and Russia from an international monetary crisis. China is doing the same both by official gold purchases and by encouraging individuals to buy precious metals.
This is eminently understandable and sensible. It is the antithesis of the argument that central banks have everything under control. They know that is not true and so buy gold themselves.
Their action also marks the transfer of real wealth in a global reset of wealth towards the emerging markets. They are the ones with the growing economies – Russia with its hydrocarbon wealth and China as the workshop of the world.
At first it was the almighty US dollar that everybody in emerging markets wanted. Now they worry that too many dollars are being created by the Fed and the obvious and unavoidable consequence is inflation down the road.
It behooves any investor to follow the smart money, and the nouveau riche nations must have gotten something right. They only want to hold on to wealth that has been hard won for many.