There are probably as many conspiracy theories about gold as there are about Elvis, Marilyn and Moon Landings, but this time the gold bugs may be proven right. With the price of gold breaching the magic $1000 mark last week, there is no reason to assume that the price will continue to rise given the level of support from the rest of the financial market. The list is long and wide, encompassing a weak US dollar, central bank buying and seemingly insatiable demand from China which, when combined with a strong technical picture, suggests spot gold prices are likely to remain in the range. price point of $1000 per ounce. before going higher.

For traders and investors who are unfamiliar with gold charting or chart reading, I suggest you pay close attention to the state and fate of the US dollar and China. One of the reasons given for this current episode of dollar weakness has been a return to equities as investors rediscover their appetite for risk, but this is not enough to explain the recent deterioration in sentiment towards the dollar. Also, if the Fed continues to stress that US interest rates are not going to rise quickly, this will also keep the dollar under pressure for some time.

Then, of course, there is China, whose economic relationship with the US can best be described as a marriage in which one spouse is thrifty and the other is spendthrift. With China sitting on approximately $2 trillion of foreign exchange reserves, half of which are denominated in US dollars, even a modest weakening of the dollar will take a major hit to China’s wealth. China has responded by not only indulging in a wave of massive commodity spending, but has also made a series of moves over the past 6 months to try to hedge against US dollar devaluation. First, at a recent BRIC summit in Russia, Chinese leaders came out strongly in favor of a new reserve currency to replace the dollar. Second, China has been buying both gold bars and mining assets in Latin America, even though it is the world’s largest producer at 270 tons per year.

Finally, in the most extraordinary change, the Chinese government is actively encouraging its citizens to buy precious metals, such as gold and silver, which until 2002 was prohibited. All banks in China sell gold and silver bars in 4 different sizes and Chinese mining companies are also encouraging their employees to convert part of their wages into gold on payday. Gold is traded in some form 24 hours a day and there are now persistent rumors that the export of silver has been banned which if true could mean gold would be next as well. There are also rumors that China is looking to ban the export of rare-earth metals that are essential in making hybrid and superconducting cars.

Finally, Alan Greenspan’s comments that the recent “rising prices of precious metals and other commodities are an indication of a very early stage of an effort to move away from paper money” would be enough to sustain the current rally in prices. gold prices for some time. come.