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<p>[QUOTE=&quot;NorthKorea, post: 1556842, member: 29643&quot;]As lonegun pointed out, if this were entirely true, it would actually result in the price of gold going down in the long run. However, it&#039;s not true. China&#039;s gold reserves are nothing compared to its foreign reserves and sovereign debt holdings.</p><p><br /></p><p>Anyway, I don&#039;t believe there&#039;s credence to a claim that all of China&#039;s reserves are placed into gold. China (including it&#039;s corporations and citizens) tend to purchase tangible asset classes (inclusive of real estate &amp; manufacturing). China used to purchase dollar denominated debt prior to Quant/Qual easing.</p><p><br /></p><p>The steps that create a dollar denominated value for gold:</p><p><br /></p><p>1) US dollar value relative to other currencies.</p><p>THEN</p><p>2) Investor/speculator driven movement in holdings</p><p>LASTLY</p><p>3) Speculative value of gold due to acquisition/liquidation from reserve banks.</p><p><br /></p><p>While #3 has the largest potential impact, it also is the least likely to cause huge movements in the price of gold. Why? Well, because once a country says it will be liquidating gold reserves, #2 accelerates quicker than #3 impacts the price.</p><p><br /></p><p>That said, the global economy making a move out of US denominated debt (and in turn, dollars) will cause a macro level weakening of the dollar. That threat coupled with the QEs has caused the dollar to effectively lose 33%-50% of its purchasing power (internationally, depending on the country) over the last seven years. The equivalent should have been resolved by 67-100% increase in prices (7-10% inflation on an annualized basis) stateside. Since we haven&#039;t actually seen that, it implies that prices are being artificially kept down on larger ticket items (food stuff does seem to have gone up, but computers/cars/houses, not so much) or were artificially expanded prior to 2005 (as in the case of housing thanks to ARMs and other mortgage related securities being priced below Fed funds rate defined levels).</p><p><br /></p><p>It&#039;s very likely that the US dollar will be removed from its status as international reserve currency by 2018. It&#039;s possible that the prevalence of natural gas usage in Asia will delay or off-set this date, but it&#039;s more likely that we&#039;ll lose reserve currency status, and possibly reclaim it by 2035.</p><p><br /></p><p>Couple this with the conscious decision by banks to not lend, the Fed&#039;s imposition of a right to raise reserve requirements (thereby lowering reserve ratios and the money supply), and a perception of impending disaster being perpetuated by the holding of A&amp;E, and you have a situation where each action by the US gov&#039;t to supposedly increase velocity of money (thereby increasing virtual money supply) is being countermanded by actions of other sections within the government or the private sector.</p><p><br /></p><p>QE1 &amp; QE2 caused devaluing of the dollar without increasing velocity of the dollar, since all the money &quot;spent&quot; on saving the finance and auto industries was earmarked against the future. At some point, the &quot;spending&quot; side of the ledger will occur, which will further devalue the dollar.</p><p><br /></p><p>While I don&#039;t see gold as having sustainable value above $1585 (current dollars), I also see potential for another 18-25% drop in the value of the dollar, which would call for a $1900-$2100 price of gold in Q313 or possibly a bit sooner.</p><p><br /></p><p>I can&#039;t see a scenario (other than the Treasury recalling all bonds) which would cause the price of gold to fall below $1200 at this point.[/QUOTE]</p><p><br /></p>

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