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Saturday, February 19, 2011

Gold-Stater weekend Gold commentary Feb 19

Gold-stater weekend commentary for Feb 19, 2011.

Chinese bullion continues to outperform all other forms of modern bullion. Last night on ebay, a 1988 Hong Kong expo commemorative 1 ounce gold coin with a mintage of 500 sold for $8600. It was purchased by a buyer with only 30 feedbacks spread over a variety of collectible areas. Three days earlier a Basel Expo gold set, (two coins, 1 oz each) mintage 1000 divided evenly between the normal coin and an error coin with "PT" for platinum printed in the field, sold for 11,500. One month ago, the same set sold on ebay for $7000.

Judging by the results from a run of sycees (stamped ingots) in the recent Goldberg auction, these results can not be considered a fluke. Several 1 tael (1.2 ounces) sycees from the early 1900's sold at between 5000 and 20,000 each; with items listed later in the auction going for more as the bidding heated up in the room.

What's going on? China is actively encouraging its population to acquire gold. And China numbers the fastest growing population of millionaires anywhere on earth. It has just passed Japan as the number two largest economy in the world. By 2020 it will be the largest.

China also holds about a trillion and a half dollars of US debt. If it held an auction for that debt tomorrow, interest rates would spike in the US and our economy would crash. This is why defense spending makes so little sense in an era when war is fast becoming a purely economic enterprise. Of course, China won't do that (unless we piss them off) because it would hurt the value of their own asset (The 1.5 trillion dollars of US debt). However, China is certain to slowly retire the debt by not purchasing as much as the debt rolls over. This will have the same dampening effect on the US economy - but slowly, over time, as well as the same depressive effect on the value of the US dollar.

All of the above points out a major cause for the inexorable rise that is taking place and will continue to take place in the value of gold bullion. With Chinese bullion leading the way.

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