I can remember back in 2004 or 05 when the first Gold ETF “GLD” came out and everyone got so excited and then a year or two later the same thing with SLV. Everyone thought “this is a game changer.” It can be debated whether it was or was not. I personally believe that these two trusts have been used “against us” by shorting the very metal that was supposedly bought. I believe that these were used as pressure relief valves where monies meant to purchase metal …didn’t quite make it to the real thing and ended up being used to purchase some sort of newly created “paper instrument.” The “demand” in other words was diverted so as not to upset the limited supply.
China has recently announced their own version of a Gold ETF; THIS very well may be a game changer. But why would this be any different from other ETF’? Simply put, because I think that they will really and truly buy and store the physical metals like the Sprott trusts do. Think about this for a moment, if some of the existing ETF’s were really created as a pressure valve, there had to be “motive” behind it. The “motive” being a way to divert demand into paper and slow the rate that real supply dwindles and the price goes up. Remember, Gold is THE direct competitor of the Dollar which is obvious motive to want the price down and benign.
On the other hand, China clearly has aspirations of the Yuan becoming a major international currency and some day becoming a or THE reserve currency of the world. Yes I know, they have been accumulating Gold fast and furiously and do not want a sky high price but they also know that there is only so much to be had. Like any “operator,” it is possible that their accumulation period is ending and now they are ready for the “markup.” How better to do this than to encourage their 1 billion+ population to begin buying (which they have already done to some extent). Why not let their population “clean up” the supply? The Chinese are VERY intelligent people and probably know better than us “bugs” what the real deal is in the gold and silver markets so this hypothesis is probably not far from the reality.
Another way to look at this is that China, no matter what “happy faces” their and our politicians put on, are our adversary. They are our competitor in many ways and many different areas. How better to “win a war” without ever firing a shot than bankrupting your competitor by “helping” their currency to implode? One must also take into account the “timing” of this announcement, we are now 3 to 4 months into a phase where 90+% of the time Gold and Silver get smashed on the paper exchanges out of nowhere. Not that the prices are really down over this period because they keep popping right back up but the trading has been different, VERY different. Some say and I agree, the smell of desperation is in the air and we are approaching some sort of “event” in the near future.
The “event” very well may be sparked in my opinion by this new ETF and the demand that will be created. If you ask me, this is on China’s part, sorta blatant and in your face “middle finger” pointed directly at the West. Time will tell and you will not have to wonder what is going on because the price will tell you. The lack of supply will also tell you the same thing but once the supply starts to dry up the game will move very fast as human nature takes hold. I am sure that you’ve seen photos and videos of “bank runs” in the past, this will be no different and just as rapid once it begins.
One last thought, please remember that the Chinese have spent the last 4-5 years scouring the globe (concentrating in Africa) for natural resources. They have done all sorts of deals in many different resource areas, they have been “securing” their future for lack of better words. They have been buying up production and future production (in Dollars as a way to spend them) and now, THIS ETF may be their “starting gun.” This strategy has been played for hundreds if not 1,000’s of years and is not rocket science by any means. It may seem like it because as I wrote the other day “we are Americans” and we’ve “been learned” that nothing bad can ever happen here. It is nothing more than the Chinese siding with Mother Nature and the West trying to deny her. Which one do you think will prevail, Mother Nature and logic or fantasy, propaganda and fallacy rocket science?