Monday, April 15, 2013

Black Swan Capital: Gold and China ~ Where to now?


"Reason and emotion are not antagonists. What seems like a struggle between two opposing ideas or values, one of which, automatic and unconscious, manifests itself in the form of a feeling." -Nathaniel Branden

China is getting a lot of attention for its growing shadow banking system. This development doesn't portend an imminent collapse, but the accompanying sluggishness in Chinese GDP sure throws up a caution flag for investors. Though that's nothing compared to the warning flag gold's price action could be waving in our faces ... 

The International Monetary Fund, in recent issues of its World Economic Outlook and Global Financial Stability reports, remarks that rising debt-to-GDP poses a risk for respective emerging economies sooner than it does for developing economies.

Unofficial estimates put Chinese debt-to-GDP at levels in the neighborhood of problem countries in the Eurozone. Are we soon to see a point where taking on more debt doesn't generate the economic growth China needs?

As you ponder that question, here is another asked by Yahoo Finance:

"Is the Era of Gold Over?"

I'm not going to answer that - in reports written earlier the month, Societe Generale effectively said 'Yes' and Goldman Sachs concurred. (Their respective 2013 targets have practically been achieved already.)

The gold era may indeed be over. But one must wonder what freshly and overtly bearish rhetoric means for gold in the near-term ..

Currency Currents 15 April 2013 

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