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China Is Now the World’s Largest Economy and It Wants More Gold

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China has officially surpassed the United States as the largest economy in the world, based upon economic output as measured by the International Monetary Fund. China’s production of real goods and services will touch about $17.6 trillion this year, while the US will produce $17.4 trillion.

This gap will continue to grow, according to the IMF. By 2019, China is projected to produce about $26.8 trillion, while the US will produce about $22.1 trillion. That translates to a growth rate of more than 52% in the next five years for China, while the rate of US economic growth will be nearly half of that – just 27%.

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An article on MarketWatch explores this news in more detail, and touches on the profound implications of this trend. :

Yes, all statistics are open to various quibbles. It is perfectly possible China’s latest numbers overstate output — or understate them. That may also be true of U.S. GDP figures. But the IMF data are the best we have.

Make no mistake: This is a geopolitical earthquake with a high reading on the Richter scale. Throughout history, political and military power have always depended on economic power. Britain was the workshop of the world before she ruled the waves. And it was Britain’s relative economic decline that preceded the collapse of her power. And it was a similar story with previous hegemonic powers such as France and Spain.“

This is, of course, a long-term development. The US will continue to dominate the world for some time, but the winds are changing. Those winds are blowing East, to a land where the government and people still inherently understand the value of real money – physical gold.

The news keeps coming out about Chinese gold consumption. We know that China’s official gold imports grew for a third month in a row in October, and nobody knows what the true unofficial numbers are. Some analysts estimate that China’s 2014 gold consumption will be very close to its record high consumption of gold last year, when it surpassed India to become the largest global gold consumer. The World Gold Council reports that Chinese gold demand will grow another 20% in the next three years.

This rising demand is a product of both the rapidly expanding Chinese economy, as well as ongoing liberalization of China’s gold market. China has opened up gold trading to foreign banks and made it increasingly easier for gold to enter the country. Bloomberg reports that the People’s Bank of China has unofficial plans to allow even more companies to import gold, which could drive down Chinese gold premiums and increase prices and demand worldwide.

So what’s an intelligent American investor to do? If you listen to the Western financial media, you might be bearish on gold and precious metals in general. However, while the price of precious metals are largely determined by Western markets today, the progression of wealth from West to East tells us that this won’t always be the case. China is going to continue to grow faster than the United States, and someday in the not-too-distant future the West is going to wake up and wonder where all the gold has gone.

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2 thoughts on “China Is Now the World’s Largest Economy and It Wants More Gold

  1. Luke says:

    I’ve been living in China for past 5 years. Like many of my friends, who have been here even longer, I have seen country change, evolve and improve on absolutely every level.

    Chinese today are not the same nation as 5 years ago, not to mention they are different from Chinese 10 or 20 years ago. Today’s China is a country of entrepreneurial spirit and drive. There is many things that China still struggles with, there are many things that are annoying to a western person, but I swear, the rate of change is humbling.

    Just watched movie “Her” yesterday. Did you notice futuristic city that claimed to be LosAngeles of the future? It was Shanghai… about a year and a half ago judging from the stage of construction of Shanghai Tower (632m high) – already finished.

    If you haven’t yet – you should check China out.

    • Thank you for your insight, Luke. First-hand accounts like yours are invaluable, as it can be difficult to separate truth from fiction in Western media. Please drop by anytime to share your experiences. We wish you the best of luck in China.

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