Daily Nugget: Fighting Inflation In China With Gold

Yesterday was an uneventful day for both the gold price and silver. Some profit-taking was seen but even US economic data failed to get anyone too hot and bothered. The price of gold still firmly has its sights on hitting a four-week high on the back of hopes of ongoing US stimulus.

Later today US housing data will be released. This will provide another indicator of the health of the economy and general confidence within it.

ABN AMRO said yesterday in a weekly report that they do not believe the outlook for gold has been changed by a dovish Fed. ‘This is because tapering is only delayed…Sooner or later it will get back on the agenda and influence financial markets again.’ There is little doubt that it will influence financial markets, but it certainly won’t change the issue that the Fed continues to inflate the money supply without creating any value or growth.

Spain, through the worst?

Is the worst over for Europe’s economy? This certainly seems to be the thinking among the financial media. Yesterday the announcement that the Spanish economy is no longer experiencing a recession after two years was well received by the markets. The recession, a housing bubble and high unemployment rate has meant the country has been almost playing the poster child for the Euro crisis.

All is not rosy though, despite a falling unemployment rate, the number of those out of work for two years continues to rise. Portugal is also purported to no longer be in a recession and now with Spain’s improving economy this will offer hope to countries such as Greece and Italy who have been having even greater troubles.

However, there fails to be any significant growth anywhere in the Eurozone and issues over banking remain. The end of the Eurozone crisis is certainly not on the cards just yet.

Fight inflation…with gold?

Markets continue to worry about inflation fighting measures in China as rising short-term interest rates cause some concern. Traders are concerned over the chance that interest rates will be increased and ongoing liquidity drains from the market. Dennis Gartman explained why China’s authorities are concerned about inflation, ‘through the centuries it has been inflationary pressures that have always brought governments down. Knowing their history, the current regime is fearful of history repeating itself and rather than facing rising inflation in the countryside, they are now moving to stem that inflationary tide.’

So whilst the government work to stem inflation, the West continue to increase it. There is little the Chinese can do to stop these currency wars, so instead the government encourages both individuals and institutions to invest in gold.