Liu Junluo: Gold crash coming

Here's my slapdash translation of Mr. Luo's latest blog post. A few sentences were left out, either because I found it difficult to translate and/or they did not have a major bearing on the main topic. I used Google Translate to speed things up, in some places the English is not fluid, but the hopefully the main ideas come through.

Note that gold is typically priced in yuan/gram in China. Gold is currently about $43 per gram, or about 283 yuan/gm.

Original post in Chinese is available here. 黄金、美国、新年好+公告
From beginning to end, China's history is filled with "arrogance and destruction," the Ming and Qing dynasties are the model.

2011 has arrived, Goldman Sachs and Chinese economists continue to exhaustively encourage Chinese people to madly buy gold. Now the small problem: the price of gold has surged 500% in 10 years, the global gold market in the region of $ 1,300 has reached an unprecedented scale. A contract must be shared by the long and short side, if there are unprecedented long gold contracts, there must also be unprecedented short-selling. Perhaps in the Chinese market today, I am the only bearish one on gold, and I think it will drop below 300 dollars.

In March 2010, I lectured in Beijing that the time to short gold will be in December 2010. I have a friend who established a short position at 305 RMB in the Shanghai gold futures market contract 1106, all his friends and the managers at futures companies desperately opposed him, and in a panic he closed his short position in gold at 298 RMB. Explaining this small situation, it shows that Chinese peoples' psychological state is not ready for participating in globalization. In Shanghai, November 9, 2010, the 1106 gold futures contract at 310 yuan expanded by 10,000 contracts; December 1, 2010 to December 7, at 303 to 310 yuan, another 10,000 contracts; the same thing from December 27 to December 30, soon after the shorts all won and the longs all lost. Now, nobody would believe that gold will eventually be worthless, but why are there a large number of shorts, moreover shorts that are unknown to the Chinese people.

Now the market value of gold has risen to 6 trillion U.S. dollars; gold futures, paper gold, gold stocks, gold producing countries CDS (credit default swaps), etc. is at least as high as $10 trillion. The gold market could be $20 to 25 trillion in size. Gold is much greater than the U.S. national debt. Chinese economists speak about gold's beautiful future, this logic rests on one idea - the U.S. budget deficit and the U.S. debt. U.S. government debt is now close to 100% of the U.S. economy, at the same time, the Japanese government debt is 200% of GDP, so the U.S. government debt is still normal. Out of control U.S. government debt is the only force lifting the price of gold, this Americans and Chinese economists know. Then, in people's heads should be the idea that a gold crash solves the out of control debt.

Now, Bernanke, Goldman Sachs, and myself, all know that gold is in an unprecedented crash state. Today, we all know the global currency system is the dollar standard. More exactly, global trade or global debt settlement must be in U.S. dollars. During the worldwide Great Depression of 1930, gold soared against all currencies precisely because the world of 1930 was on the gold standard, at the time you had to sell your currency to buy gold, so you could participate in market settlement. Over the past 3 years, global governments and the private sector issued an unprecedented amount of debt, a total size of not less than 20 trillion dollars. More preposterous is that emerging countries, especially China, engaged in large-scale borrowing and inflation.

At 1300 U.S. dollars for gold, the United States has established a worldwide currency reservoir. QE2 U.S. monetary policy has accelerated the rise in inflation in China, the Chinese central bank can only accelerate to keep up with the Americans, in this way the currency in the gold reservoir escapes into agricultural products, coal, oil, the Nasdaq market, at last China's central bank can only desperately hike interest-rate and ultimately resulting in the global outbreak of debt settlement, the crash of the Chinese property market and the gold market. In order to complete this, to solve the U.S. debt with a gold crash, Goldman Sachs and Chinese economists need to create a gold fairy tale.

There are $13 trillion in Japanese savings, if the Japanese take half of the savings, they can put most of the world's gold in Japan. According to the Goldman Sachs' and Chinese economists' logic, that the Japanese do not buy gold now is stupid. But the next 5 years will be the Internet's truly global growth, the Internet will go from 2 billion to almost 4 billion users. After 2012, technology reserves, cultural reserves, human capital reserves and agricultural reserve will create the real boom in America's Nasdaq.

In 2011, everyone in China dreams of getting rich with houses and gold. In 1997, the ASEAN region was also full of dreams of getting rich with houses. In 1998, ASEAN regional house prices collapsed more than 70% and some currencies suffered 1000% devaluation. We Chinese should not be a global financial fool; we see that the Chinese stock market and the U.S. stock market contrast; we look at the global agricultural market and gold market contrast, China's economists are just a group of "idiots and good-for-nothings." In my book "Great Financial World," we also understand these structural problems in Japan's property market after 1992.

This 2011 Chinese New Year, Wall Street and U.S. multinational corporations have got 3 trillion dollars in cash. The most brutal time of the Great Depression was in 1932 when, if you had cash, you were king. If history repeats itself again, Wall Street and U.S. multinational companies have got 3 trillion dollars in cash and will control the world.

The mission of my current book, "Great Financial World", is to record how China was ultimately destroyed by the United States using economics and finance. In the United States now, all the best people are on Wall Street and China's economists tell us that building houses and buying gold can defeat the United States. But America's best talent is working hard to enlarge global indebtedness. It is Bernanke and Wall Street creating the global debt zoom that are idiots! Or its Chinese economists that tell us to build houses and buy gold that are idiots!

Wish My Friends a Happy New Year!

Liu Junluo January 25, 2011

One thing I've noticed about Liu Junluo's writings and which Chinese readers have also noted, is that he's often right about the direction of things, but doesn't always explain why. There is an existing theory that fits Mr. Luo's prognostications like a glove though—deflation. Robert Prechter has predicted a much lower gold price as well and he is one of the most bearish deflationists on record.

An interesting symmetry also exists in the writings of Liu Junluo and others who share his opinion. Just as one can read about the incompetent U.S. government/economists being defeated by the wise Chinese in some quarters, many Chinese hold the inverse opinion, that incompetent Chinese government/economists are being defeated by the wise Americans.

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