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Chinese Gold Standard Could Look Like This
July 29, 2009



Gold marches up toward $1,000. Gold marches back down again. Today it is $934.

What if this is what China wants?

I have read writers who say that Chinese buying is good for the market and an indication that gold is about to take off. I'll bet you have seen stories like this, too.

Certainly Chinese buying is not an indicator of gold market weakness. That goes without saying.

But is it in the interests of China to push gold to $1,500 or $2,000 a troy ounce when it holds so many U.S. dollars and other foreign currencies?

That would be like throwing half their money away. Why would a Chinese official in his right mind simply bid the price of gold higher and higher on the open market?

It seems to me it would be far better for the Chinese to nibble when gold is weak and stop buying when it temporarily strengthens. Over time its gold reserves will continue to grow and they will do so without disruptions to the market that would cost them a bundle.

When the gold standard held sway in the world, the U.S. Treasury stood ready to buy gold for the official price of $20.67. It also stood ready to sell gold for $20.67 an ounce in the form of freshly minted U.S. coins.

The prices weren't precise. The market assessed what were called points to pay the cost of shipping, insurance and the expenditures associated with handling physical gold.

What if China has decided to behave somewhat in this fashion except the band is not points either side of an official price but simply $1,000 on the high end and $900 on the low end?

It could keep this up for years.



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About the Author
David C. Harper has been a coin collector since 1963. He joined the Krause Publications editorial staff in 1978 and is currently editor of Numismatic News, Bank Note Reporter and World Coin News. He also edits two books annually, North American Coins & Prices and Coin Digest. He is the author of the Class of '63 column that runs each week in Numismatic News. His first bylined numismatic article appeared in the June 1971 issue of Coins Magazine and his various Krause Publications assignments included a stint as editor of the magazine 1980-1983. Harper received a bachelor of science degree from the University of Wisconsin-Oshkosh in 1977. He had a double major of journalism and economics.

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