Long after the Americans finish celebrating New Years and begin to renege on resolutions, the Chinese are just getting started. While the Chinese “Spring Festival” has not caught on with the rest of the world, the impact of this Chinese tradition offers average Americans a unique opportunity to benefit here in the USA. This year from February 15-22, the financial markets will be closed in Shanghai. Chinese retail (including jewelry retail) however, goes into hyperdrive, with 11% revenue increases in some years during this season. These two anomalies provide a unique opportunity to benefit American precious metals owners and investors. This year looks to be no exception. While activity in China often slows the week before and after the official celebration, a great time to purchase is usually sometime during the middle of the event.
Chinese Golden Week
Similar results are often seen in October, during “Golden Week” in China. Gold has struggled during the last 4 years during this period, due to Chinese buyers not being available to counter those that push down the gold price in the West. The Chinese usually do not mind the lower prices, as jewelry makers often sell much of their inventory during the holidays, and look forward to having lower entry points to replenish their metals. Wise Americans can learn from this tactic, and use the price smashes to their advantage. Instead of being paralyzed by falling gold prices in an established bull market, we should view it as an incredible buying opportunity.
With now even Goldman Sachs admitting that gold is in an acceleration phase, those looking to accumulate will want to do so when millions of ounces of paper gold are sold on the Comex. This tends to temporarily drive the price lower, even when there is no logical reason to sell in this manner. Normally, when someone has a large position of anything to sell - be it gold, stock, real estate, etc, they would typically sell a little bit at a time, so as not to reduce the price received. Those who sell massive amounts of paper gold or silver at once, are usually trying to reduce the price of gold, to take attention away from it. When the largest consumer of gold (China) is closed for business, it is easier to get the price down further and faster than otherwise possible.
We should probably provide some reasons, for those new to the gold space, why gold is in the middle of a significant upward trend. Perhaps one of the biggest reasons is the incredible debt levels that exist in the United States (and elsewhere, for that matter). Not only current debt, but future debts. The debt levels here are increasing by millions of dollars every minute, with no end in sight. The only way this debt can be paid back, is by devaluing the currency. One way to view the effects of this, is by looking at what has happened to $20 worth of groceries over time, as in the picture below.
If you could buy 20-30 years’ worth of groceries now, at today’s prices, you could insulate yourself from future price increases. The problem is, the groceries won’t keep that long. Enter gold and silver. By putting some of your resources into precious metals, you preserve the purchasing power the same as if you had purchased 30 yrs of groceries upfront; the effect is the same.
The Burgeoning Federal Debt
If the burgeoning federal debt were not sufficient to push the Dollar down and gold up, the changing world financial system provides reason enough. For as long as most Americans have been alive, the Dollar has been considered the World Reserve Currency. If you wanted to buy oil, it was sold only for Dollars. That has already changed, and is continuing to change at a rapid pace. We covered this in greater detail here in the "Dollar Saga Continues," but suffice it to say that “King Dollar” appears to be losing his throne. When the $15 Trillion+ of Dollar assets owned by foreign entities begins to pour back into the US as it is exchanged for more stable assets, it will cause the value of Dollars already in circulation here to plummet further.
Price of Oil on the Rise
Another reason gold is moving higher, is the price of oil is on a long-term increasing trend. It takes energy (oil) to mine gold. As the cost of production rises, so does the cost of the product produced (fine gold). While in the short run many are talking about the oil being exported by the United States as proof of burgeoning supply, many of the wells tapped by fracking are already showing signs of depletion. Some believe supplies may vanish as quickly as they appeared. Unfortunately, the light sweet crude produced in the US is not the type of oil most sought after by overseas refiners, and will have a limited market going forward.
Additionally, both stocks and bonds are behaving as if they are near the end of a long run up. When money starts leaving the market, it looks for a place to land. With gold having formed a strong bottom over the last few years, and showing resilience in the face of severe headwinds, it is a prime candidate for the big money to push it further. Some significant investors, such as Ray Dalio, are already moving towards gold. Often the actions of influential investors are imitated by others as events unfold. It is better to get in front of this train before it leaves the station, than try to catch it after it is gone.
This is why the Chinese New Year might provide a welcome opportunity to stock up on precious metals, during the customary price smashing that goes on in the West. The price dips should only be temporary. If for some reason this time, the powers that be are ineffective at driving the price lower for the Chinese New Year, it means that demand for gold has come to life in other sector(s). This would indicate that gold should continue even higher, when the Chinese come back on line. The case for steadily rising trends in the gold and silver markets seem to be growing stronger by the day. In a couple of years, we will correctly view the days of downward manipulated prices as a gift, and look forward to starting our own “Spring Festival” tradition. Get your investors kit, now.
Financial Analyst of 29 years and Gulf War Veteran, Bill has been helping families nationwide keep their money safe and growing since 1993. As a Certified Financial Fiduciary® and a RICP®, Bill specializes in helping protect your assets with growth potential.