Will China Unleash More Stimulus and Boost Gold Prices?

Wall St. Cheat Sheet

On Tuesday, China reported GDP growth of 8.9 percent in the last quarter of 2011, which is the slowest growth increase in more than two years.  Although analysts were only expecting growth of 8.7 percent, the slowdown gave investors hope that the world’s second largest economy will inject more stimulus into its economy to fuel growth.  As a result, gold jumped $24 to climb above $1,650 per ounce, while silver surged 60 cents to settle above $30 per ounce.  However, investors should reign in expectations of more stimulus being unleashed in China during the early part of 2012.

The last time China experienced a significant slowdown was towards the end of 2008.  Over the next two years, China provided four trillion yuan ($586 billion) in stimulus money to boost growth.  While investors may be expecting another replay of stimulus, China is indicating that the current slowdown is not significant enough, and inflation is still a concern.  On Wednesday, the China Securities Journal said the nation has no reason to slash interest rates in the first quarter of 2012, because real interest rates remain negative.  The journal explains, “Any change in China’s interest rates will come at a more appropriate time window, when inflation eases further and when economic growth slows down further.”

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Investor Insight: Global Factors Boost Gold and Silver Demand.

The inflation rate in China was last reported at 4.1 percent in December 2011.  Inflation hit a three-year peak of 6.5 percent last July, and averaged 5.4 percent over the course of 2011.  The official inflation target in China for 2011 was 4 percent.  XE, a leader in foreign currency research and tools, explains …