Chinese must buy gold to hedge increasing dollar exposure

(March 8, 2013 - by Peter Cooper: Arabian Money)

‘There is no doubt in my mind that the price of gold is going to and through $3,500 with unimaginable volatility. All that anti-gold forces can accomplish is to add outrageous volatility to the gold market which will continue and increase in price spread for both the ups and downs.

‘The economic axiom known as Gresham’s Law is operating in the Central Banks of the BRICs whereby gold is being accumulated with a goal of 15 per cent of the reserve balance. To create this reserve goal you can reduce the fiat reserves as well as increase the gold reserves.

‘You can reduce your fiat reserves by long term contracts in dollars by parastatal accumulation of resources and the means of production as China has done in a huge way. China therefore due to dollar contract settlement needs over years has hedged a great deal of their dollar position.

‘The goal of 15 per cent of reserves are the currency gold, and gold’s ascent in the marketplace due to the effect of Gresham’s Law to an accepted monetary form. This is something the West has no control over.

Western reaction

‘All the West can do is to attempt to inflict outrageous volatility into gold thereby trying to make confidence in the price of gold hard for those that do not understand. This is what has just happened.

‘All you need to do every time the US Treasury and Fed seek to make the gold market outrageously volatile via their friends, the gold banks, is to do nothing…

‘When gold breaks above $3,500 and $4,000, as it will do, the US Treasury and Fed via their friends and relatives at the Gold Banks will run gold from $3,500 to $4,990 and back again a few times before gold settles into the currency as described above at $4,400 for the beginning of the greatest economic expansion the world has ever seen.’

In a nutshell, buy-and-hold and don’t try to trade gold. That is the message from one of the greatest gold traders of all-time!