We have found it rather comical in the past two or three days as those in New York and perhaps even in London and Chicago have tried to blame the weakness in the commodity markets upon “inflation” in China, believing that rising inflation there shall bring the monetary
authorities out with brick bats to slam the markets lower as they rush to tighten monetary policy. Rest assured that the monetary authorities in China are keenly aware of the problems within the Chinese economy as it speeds along toward double digit growth and as housing prices soar. And rest further assured that the political authorities know their Chinese history
very well, cognisant of the fact that down through the ages Chinese governments have been overthrown when inflationary pressures became too severe and the masses were troubled. And further note that the recent inflation data from China that had everyone so concerned was indeed rather high, but all of that was due to “food” and little of it was due to the basics stuffs of industrial production.

Having said that, we raise our hands down here in the southeast corner of Virginia, far from the madding crowd, to say “Hey, isn’t inflation ‘good’ for gold prices? Isn’t that what history tells us? Isn’t selling gold because inflation is higher and rising a wee bit silly? We’re just askin’?”

Looking at the chart of gold in US dollar terms, we shall acknowledge that the recent bout of selling that took gold down from $1145 to $1101 was worrisome… at least for a while. In the process, we would surmise that a larger number of late, and perhaps ill-capitalised, gold buyers were taken out of their positions over the course of the past two days. Now, the market appears to have been returned to relative health, and our propensity is to add to gold, but this time erring on the side of owning some of it in US dollar terms, and more
of it in Yen terms. As Grantland Rice said, “The race doesn’t always go to the swiftest, nor the fight to the strongest, but darn if that isn’t the way to bet!”