Addison Wiggin

The city is on lockdown. Street vendors are closed. Taxi drivers have been ordered to seal their windows to prevent seditious material from being leafletted in the main square.

Known troublemakers? Locked up… just in case.

Another G8 or NATO summit in the West? Heh. No, it’s the once-every-decade gathering of the Chinese Communist Party’s congress. The event starts today… and could have immediate ramifications on U.S. Treasuries, the U.S. dollar and, by extension, the price of gold.

The Chinese view of our own national election…

“The [Chinese Communist Party’s] meeting’s more than 2,000 delegates choose a central committee,” explains the BBC, “which then chooses the country’s highest decision-making body, the Standing Committee of the Politburo. The process takes place behind closed doors, with the makeup of the top bodies in reality decided ahead of time.”

If the procedures are, umn, less than transparent, today’s outgoing speech president Hu Jintao was refreshingly upfront by Western standards. “If we fail to handle this issue well,” Hu lamented the rampant corruption inherent in their system, “it could prove fatal to the party, and even cause the collapse of the party and the fall of the state.”

Then again, Hu’s predecessor Jiang Zemin said the same thing 10 years ago. The party was “heading for self-destruction” if they failed get corruption under control. Apparently, the Chinese take a long-range view on all plans… not just those involving economic domination of the planet.

Corruption (and snarky comments) aside, “China has a long list of challenges,” says our macro strategist Dan Amoss. But the investment implications for you are real.

“Its manufacturing companies face sluggish international markets,” Amoss asserts, “its banks are dealing with the fallout of a burst credit bubble; its imbalanced economy still depends on a destructive level of construction activity; and, of course, it’s undergoing the first change in political leadership in 10 years.

“Considering these challenges, China’s currency management policy has shifted. The People’s Bank of China is not nearly so concerned with providing vendor financing to China’s U.S. customers (by recycling export earnings back into the Treasury market).

“Chinese leaders acknowledge that the country already has enough U.S. Treasuries, and have allowed their Treasury portfolio to shrink slowly in recent months. What they are accumulating (unofficially) is gold, which we can see in the soaring gold imports through Hong Kong.”

Chinese imports continue to soar. In September, they totaled 69.7 metric tons — up an impressive 22% from a year earlier.

“Gold is the perfect hedge for the slowly eroding value of China’s U.S. Treasury portfolio,” Dan concludes. “After the U.S. elections revealed a country likely heading more towards a European economic model, the shift into gold should accelerate.”

Cheers,
Addison Wiggin

The preceding article was excerpted from Agora Finacial’s 5 Min. Forecast. To read the entire episode, please feel free to do so here.

Addison Wiggin

Addison Wiggin is the executive publisher of Agora Financial, LLC, a fiercely independent economic forecasting and financial research firm. He's the creator and editorial director of Agora Financial's daily 5 Min. Forecast and editorial director of The Daily Reckoning. Wiggin is the founder of Agora Entertainment, executive producer and co-writer of I.O.U.S.A., which was nominated for the Grand Jury Prize at the 2008 Sundance Film Festival, the 2009 Critics Choice Award for Best Documentary Feature, and was also shortlisted for a 2009 Academy Award. He is the author of the companion book of the film I.O.U.S.A.and his second edition of The Demise of the Dollar, and Why it's Even Better for Your Investments was just fully revised and updated. Wiggin is a three-time New York Times best-selling author whose work has been recognized by The New York Times Magazine, The Economist, Worth, The New York Times, The Washington Post as well as major network news programs. He also co-authored international bestsellers Financial Reckoning Day and Empire of Debt with Bill Bonner.