Gold Could See Exceptional Gain if China Bubble Bursts

As The Daily Reckoning has discussed before, there is great division on whether or not China’s in a bubble. In a guest post on Zero Hedge, Gary Jeffery argues not only that China is in a bubble, but that upon its bursting a fairly outlandish series of events will take place and lead to the price of gold skyrocketing.

It’s definitely not mainstream analysis, which makes it all the more worthy of a look. This is how Jeffery sets the scene:

“…it makes perfect sense for the Chinese monetary authorities to want to engineer a bubble, given the other potential alternatives.  Ultimately when any bubble pops, as we have seen in any number of emerging market blow ups, private citizens (domestic/ foreign) attempt to flee the imploding (inflation ravaged) currency – thereby ultimately by fiat or market forces a currency is devalued. However China is really big and different – and this is ultimately why the whole global monetary system is not behaving as “most” mainstream punters are predicting.
“We all know that China would prefer a devalued currency (export competitiveness) so surely a massive domestic bubble popping should be a slam dunk for Chinese policy makers…”

He goes on to explain how, in the event of such a massive China failure, a solution involving gold could be a reasonable course of action…

“It [gold] is so useless that it is really the only asset that can act as a store of value and wealth transferal mechanism from global lender (China) to global borrower (the West) without significant first round imported commodity price inflation.”

Again it’s a wild theory, but it’s interesting to consider. To follow his logic through from China’s failure to a gold price explosion visit Zero Hedge and read the post on thinking through why gold is the only answer in light of the Chinese bubble economy.

The Daily Reckoning