China Is Buying Gold Again And They Tend To Lead Others As Well
Gold has an extremely bullish chart in 2024 going from the bottom left to the top right. It made a series of record highs this year and is primed to keep doing the same in 2025.
Since hitting its all time high on the futures at $2800, it corrected back to $2550 and since then has made a series of higher lows that is setting it up for a run past $2800 before the end of the year. The recent action has been fueled by the announcement that China is buying gold again after taking a six-month hiatus.
Nothing has really changed for the fundamental reasons to be bullish on gold during the recent swings in the price. There is still a Death Spiral of Debt in America and throughout the world. The debt servicing costs for America is the straw that will break the debt camel’s back. Traders seem to believe a spending junkie like Trump is going to change his stripes which is highly unlikely.
Another important development is that gold has overtaken the Euro this year to become the second highest currency held in reserves by the global central bankers. Gold is trading at record highs against practically every fiat currency as it shines as the soundest money. Debt instruments are at unprecedented highs and fiat currencies are doing what they do which is destroying purchasing power.
The global debt and fiat currency system is broken and the only two ways to fix it is through defaulting on the debt or returning to the Gold Standard. The debt creation and money printing is out of control and the politicians and the Fed need some controls which the Gold Standard imposes on them.
The Fed’s Powell has a way of denigrating gold, mainly because he likely feels he can manage things better. The Fed has been the drug dealer to the spending junkies of politicians on the left and right. The Fed and politicians want things to be business as usual, but they have created such a mess that they need discipline reinstituted by the Gold Standard.
Central bankers in and outside the BRICS nations see the writing on the wall and are selling their US debt and US dollar to buy gold. They get gold. China tends to be a leader when it comes to central bank buying of gold and their recent announcement that they are buying again should bring in more central bank buying by others.
Demand for physical gold has been impressive during 2024, but if the supply chain of gold was strong we would not have seen such a powerful move. The supply chain of physical gold has broken links from the majors to the explorers.
The major gold miners are struggling to increase production and to replace what they mine with new mines. Which is why M&A activity has picked up, but that doesn’t increase production, it just moves assets from one company to another. It also has limits because there just aren’t many takeover candidates that can move the needle for the majors.
Looking at gold mines in development, there aren’t nearly enough high-quality projects that can make a significant difference to the supply chain of gold. A key reason that there are not enough gold mines in development is because for much too long, there have not been enough important discoveries that can advance into the development stages.
Therefore, the supply chain is broken and it took a couple of decades to break it, and it will take just as long to repair it or longer. Which is very bullish for the price of gold.
The real torque for investors is in the best in breed gold miners, smaller miners with strong production growth profiles, developers with high-quality projects and explorers with important discoveries.
All the best,
Allan Barry Laboucan
