What China Just Did to Obliterate Stocks and Send Gold Soaring

Over the past several months, China has been in the process of buying up enormous amounts of the world’s gold supply. The leaders of the world’s second most powerful economy clearly understand something that most mainstream investors don’t – that gold is the only source of true wealth and value in today’s volatile economy.

What’s more, the Chinese just made a huge move that repositions their gold strategy for even greater leverage.

According to Finanancialsense.com, China is implementing a new rule stating that nothing short of AAA-rated bonds can be used as collateral when raising short-term loans. But it’s the impact the decision had on the gold market that has contrarian investors buzzing.

Here’s the full story:

The gold price rose sharply Tuesday lunchtime in London, touching $1219 per ounce as Western stock markets fell hard following a 5% plunge in Shanghai, spurred by a change in China’s debt market.

Major Western government debt prices rose, pushing interest rates lower, as weaker Eurozone debt fell.

China’s main gold contract closed Shanghai trade 1.4% higher in Yuan terms on solid volumes. But it had earlier slipped to a slight discount against Dollar spot prices as the Chinese currency extended its fastest drop since 2008 to a second day.

“After sitting at [premiums] around +$2.50 to +$3.00 yesterday,” says a note on Asian trade from Swiss refining and finance group MKS, “buyers were happy to scoop up metal here, which kept the spot gold buoyant above $1200.”

Local traders attributed the Yuan’s sharp decline – down to its lowest level vs. the Dollar since July – to “a late reaction to Monday’s [weak] trade data,” MKS adds, “as well as an expectation of a near term cut” to the required reserve ratio of Chinese banking deposits against loans, meaning looser of monetary policy.

Dollar prices for London wholesale gold traded 2.0% higher for the week so far as New York trading began Tuesday.

Gold prices also rose sharply for non-Dollar investors, hitting a 7-week high in Sterling and a new 19-month high against the Japanese Yen.

China’s capacity to manipulate the gold market is already strong. Who knows what they’ll be capable of if they continue buying up gold?

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