China Resumes Buying Gold Shortly After Trump Threatens 100% Tariffs
It sure looks like a bout of stagflation is shaping up but few are talking about it because the focus of the Fed, financial media and investors are fixated on the government statistics for the jobs market, economy and inflation. But, those indicators have issues that are masking the potential for stagflation, which if it gains momentum is very bullish for gold.
Although the government statistics have serious flaws, they remain to be the basis for the talking points of the Fed, financial media and Wall Street. Even the Fed considers the statistics on the jobs market artificial and that Fed members need to adjust them for their models and decisions on rate policy. The statistics on inflation are inaccurate at depicting real inflation because they exclude so many things that consumers actually spend their money on.
The recent election is a perfect example that things aren’t adding up. While the Fed makes the case for a Goldilocks economy, voters showed up en masse to say that the economy ain’t all it is cracked up to be.
They are stressed out by a jobs market that has been shedding full-time jobs for a long time that has caused them to take on a couple part-time jobs. While the government considers losing a full-time job to take on two part-time jobs as a gain of one job. No matter how they calculate this certainly doesn’t portray a healthy jobs market.
Adding further to their angst is that real inflation is very hard on them when they pay for stuff at every turn, including those things that are excluded from the government inflation statistics. Plus, they are using their credit cards at extreme interest rates to make ends meet.
It is clear that the jobs market and the economy is not strong enough. Consumers are struggling to keep up with the costs of their debt and credit card interest rates while dealing with real inflation.
On the inflation front, things could get a lot worse. The Fed has not beat inflation, they have only slowed down the rate of inflation based on their flawed numbers that exclude too much and understates real inflation. Their cutting rates is likely to increase inflation, at least that is what has the bond vigilantes worried.
If Trump goes ahead with his tariff plans, it will further add inflation pressure. The same can be said for his mass deportation plans as they provide a lot of cheap labour to the economy that will cause wage pressure to push up prices.
Inflation has a way of coming in waves once it gets out of control. We have seen the first wave over the past couple of years, and it looks like a new wave could be in the not too distant future.
Gold is in a tight trading range over the past week or so and China just announced they have been buying again after being on the sidelines for the past six months. One reason could be that they see the potential for the US economy to falter while inflation enters a second wave. Stagflation is very bullish for gold.
But, the most likely reason is that they don’t like the recent post from Trump on social media threatening 100% tariffs on countries that move toward a BRICS currency or move away from using the US dollar as the dominant currency for world trade. I would guess that they want to send a message that they won’t be pushed around.
The timing of Trump’s threat seems strange because the BRICS nations aren’t really doing anything to create a BRICS currency. What they have been doing is making agreements to do international trade using their domestic currencies. While also buying gold aggressively over the past few years.
If anything, it looks like gold, not a BRICS currency, could be the likely candidate of what they may want to use for international trade in a more significant way in the near-term. The central bankers in the BRICS nations, and some outside that alliance, have certainly been buying a lot of gold. Earlier this year, gold overtook the Euro to gain second place for currencies being held by central bankers.
Gold is the soundest money, no government can print it and it has no debt behind it. In a world economy built on debt and money printing that constantly destroys purchasing power, it is the perfect alternative to a worldwide broken debt and fiat currency system.
China is one of the key countries in the BRICS alliance, and others in the group tend to follow their lead. The recent announcement that China is buying again after taking a breather looks to be very bullish for gold.
China resuming buying gold is just what the doctor ordered for gold to rally inside of a powerful bull market in 2024 that has seen it make several record highs. This year has been great for gold and it looks like 2025 is shaping up to see a new series of record highs. I can see it rally to $3000 plus in early 2025.
All the best,
Allan Barry Laboucan
