The China Vortex

Gold prices are going up.

Jim Rogers has long been a bull on China, to the point where his daughter’s first language is Mandarin, and is betting on a rise in commodity prices because of demand from China. He highlights this point in his new book A Bull in China: Investing Profitably in the World’s Greatest Market.

The recurring theme is not so much demand from China, but that people in Asia are turning to gold as an investment, safer than property. In my previous article, I mentioned that gold is often an investment of last resort which is safe when all the other investments have gone down the tubes. Obviously Vietnamese and other Asian investors have the same belief and affinity for the metal as Chinese do, and as I’m sure Jim Rogers does.

The astute investor will notice that it isn’t so much that they believe in gold, as it is that they are rushing to get out of US dollars.

When Jim Rogers talks about the commodity demand from China, the flip side of the story (which he is not talking about so much) is that he is using US dollars to buy those commodities.

When you have too much of a currency in circulation, you get inflation and the currency loses value until a new floor is found and supply and demand reach equilibrium. Right now, Asian investors do not feel that they know where this new floor will be; that explains the rush to gold and gold futures.

That is what’s going on now.

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