Chinanews, Beijing, November 16 – With the rising of gold price in China*, many people have begun to show great enthusiasm for investment on gold, making the country the fourth biggest gold consumer in the world.Investment is one of those wierd areas where the laws of supply and demand stand directly upon their heads. Economic law tells us that a higher price leads to less demand for goods and more production of them, allowing a new equilibrium to be established (it never is, but that's a different story). Investment goods, however, are different: when things are going up in price, people want them and demand rises. Gold is a perfect case in point: 5 years ago, when the price was less than half what it is today, no one wanted it; today it's occasionally mentioned; in 5 years it'll be 5 times the current price and on the cover of every magazine in the world.
But China has been a consumer (a misnomer to be sure because gold is not consumed) of gold for thousands of years. Since the Chinese were the first to create paper money, Chinese peasants have had centuries of practice protecting their savings from the depredations of government, and they have always done so with gold and silver. The rising price of gold may be creating some marginal excitement, but China's love of gold, like India's, is rooted deep in the culture.
However, gold price is determined by many unpredictable factors, investment on gold will pose greater risks even than on stocks. “Even professionals like us can not always tell whether gold price will fall or rise, not to mention ordinary consumers,”said an expert.An expert who may or may not exist, I might note. While the gold price is truly determined by many unpedictable factors (and the price of what, exactly, is not?) the idea that gold poses a greater risk than stocks is so laughable that only a communist or a Democrat (insert joke here) could say so with a straight face. As we all know, gold goes bankrupt all the time, right? Or was that third-world companies? I get so confused by economics sometimes.
Furthermore, many Chinese put their investment on gold ornaments, rather than pure gold bars; however, the value of these ornaments depends largely on their art layout rather than their material, and it is much harder to realize the value of gold ornaments than gold bars. Thus gold ornaments are not rational choices for investment.And as we all know, art is a terrible investment, right? But if the value depends on the art, then why is the rising or falling price of gold even an issue?
Gold ornaments are indeed an irrational choice if the purpose is to invest in gold; if that's the case, only gold will do. But that doesn't make gold artwork an irrational investment any more than rare gold coins are a poor investment.
I've gotta admit I don't follow the Chinese words, but their deeds. Along that vein I tried to purchase the golden picture of Shorty above, but alas the price got away from me. Because my purpose was to buy gold and not history I didn't chase it up. There will be other chances. At least until the price of gold rises again and then everyone wants in.
I suspect by then those lying Commie bastages will own just about all the gold.
* The reason the price of gold is rising in China is not because there's any less gold or more Chinese, but because the yuan is tied fairly tightly to the US dollar, which is falling against gold at an alarming (if you have no gold) or profitable (if you have gold) rate.