The scarcity of gold and silver has shocked many US and Chinese investors. This has caused them to reconsider their investments. It has also caused the prices of both metals to skyrocket. For many investors, this has caused a huge loss of wealth. But, how does this impact the overall monetary system?
Historical context
Most gold diggers will tell you that gold and silver has always been an underrated commodity. In fact, a recent rumor has it that a reserve of the metal may be about to run out before the year is out. Keeping abreast of the gold dust is no small feat. Fortunately, the US and Chinese governments have a combined arsenal of mercenaries. Not to mention that a few hundred billion dollars worth of bullion can be thrown around to boot. Those who have been paying attention may be able to snag some of the best deals in town. If you can withstand the cold and have a bit of luck, the reward is well rewarded. Besides, who knows, you may just be next in line for that coveted promotion.
Impact on China’s monetary system
Silver in China made a significant contribution to the monetization of the economy during the fifteenth and seventeenth centuries. As a result, there were two periods of equal silver/gold exchange ratios in China before any could do a gold IRA review. These were the Ming dynasty and the early part of the eighteenth century.
The price of silver in China, relative to the international market, rose rapidly as the price of gold fell in the sixteenth and seventeenth centuries. This resulted in an excess supply of silver that was used to produce arbitrage profits.
A sharp fall in the world price of silver brought this process to an end. It also removed profits from the mining of silver in the New World. During this time, Europe did not ship silver to East Asia. Rather, European merchants traveled to China and bought Chinese goods. They then paid tax payments in kind, rather than in cash.
When the international gold standard was established, China could not sustain remittances. This, combined with fiscal crises, caused printing of money. The early Ming government fought the monetization of silver.
Investment use of gold in China
Many investors believe that gold and silver are safe havens during times of economic instability. These commodities are not only sought by investment professionals, but also exchange traded funds and investors themselves. They are a hedge against inflation, political turmoil and climate change concerns.
During the COVID-19 pandemic, many financial markets faced severe devastation. The loss of money supply and the lack of tax income made the government unable to pay for military campaigns. This caused the oil price to collapse. In turn, the economy was weakened and the global demand for commodities decreased. Despite these problems, the financial market rebounded.
In the aftermath of the outbreak, investors searched for safe haven assets. However, uncertainty about the nature of the pandemic made investors unsure whether these protective assets would be effective.
As a result, investors moved holdings to safe haven assets such as gold and oil. This strategy increased the risk-adjusted return performance of portfolios during the outbreak.
