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Gold is getting some love.
Last week, the noble metal jumped more than 4% in price as Ben Bernanke fired up his printing press.
If you missed the news, our benevolent Fed head said that he would keep money loose until late 2014.
Everyone likes more money.
Taking him at his word, the market bought gold.
Gold Pops to $1,740
Money is now practicably free.
For example, you could loan money to the government for five years and get a miserly yield of 0.73% in return. That's less than inflation, which means that you are actually losing money.
TIPS — those financial instruments that protect you from inflation — are actually returning a negative yield.
You Need to Buy Gold
It is more than obvious that the way to make a ton of money is to borrow as much as you possibly can at super-low rates, buy gold, and wait for your debt to become worthless.
After all, it is the job of the Federal Reserve to debase the currency.
They are good at it. It's what they do.
The U.S. dollar has lost 97% of its value since the Fed was created in 1913. But mighty Ben and his printing press thinks his predecessors were slackers, ne'er-do-wells, and incompetent noobs. They didn't do their jobs well enough...
Benjamin wants to destroy more dollars, faster.
But alas, the global financial system is a giant web. You pull a thread here, and something happens over there. It is all connected.
And the U.S. printing press is making a mess in China.
Ghost Town Real Estate
According to UWin Real Estate Information Services, prices for new homes in Shanghai fell 40.96% last week. Not only did the floor drop out of the housing market, but nothing is moving. Only 4,400 square meters of transactions closed — that's a fall of almost 90% in a week.
True, it was the Chinese New Year — the Year of the Dragon — but the drop in volume was twice the historical drop of 37%.
One week isn't a long-term trend. Maybe it was just an anomaly, or perhaps investors have run out of greater fools. They may have even seen pictures of the Chinese ghost towns that litter the Internet.
Chinese Gold Rush
What we do know is that the Chinese are buying record amounts of gold.
According to Forbes:
This month, the Hong Kong Census and Statistics Department reported that China imported 102,779 kilograms of gold from Hong Kong in November, an increase from October’s 86,299 kilograms. Analysts believe China bought as much as 490 tons of gold in 2011, double the estimated 245 tons in 2010.
That's a lot of gold. And it will continue.
Chinese gold buying is expected to increase by 25% to 30% in 2012.
It's not the government that's buying this gold; the Chinese central bank is busy buying up foreign currencies to keep the RMB low...
It's the people.
The people are looking at inflation moving above 4%, a stock market that has fallen 20%, and a housing market that is about to go tits up.
The average Chinese person has the world's highest savings rates, but few investment options. So they are buying physical gold.
There are plans set up with banks that allow purchases of as little as a gram of gold a month, worth $55.60.
China is already the world's largest producer of gold, and the Middle Kingdom may have surpassed India as the world's largest buyer of gold.
Right now, the country accounts for 23% of buyers, up from 19% in 2010.
Good luck and good hunting,
Since 1995, Christian DeHaemer has specialized in frontier market opportunities. He has traveled extensively and invested in places as varied as Cuba, Mongolia, and Kenya. Chris believes the best way to make money is to get there first with the most. Christian is the founder of Crisis & Opportunity and Managing Director of Wealth Daily. He is also a contributor for Energy & Capital. For more on Christian, see his editor's page.
P.S. In this space on December 31st, I told you to buy CZZ, the Brazilian Sugarcane Ethanol producer. The stock is up about 28% in a month. Time to lock in those gains... Sell it.