Will the Next Silver Bull be Chinese?

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"Clearly, the government believes the country is strengthened if everyone who can holds some hard currency"

Most analysts have attributed the latest rally in precious metals prices to rising inflation concerns.

What's supporting these inflationary fears? At first, the amount of paper money governments have pumped into the financial system had many worried. Those worries were enough to encourage small rallies in gold and silver prices earlier this year.

To explain gold and silver's price movements as a reaction to inflationary concerns is not getting to the heart of the matter. Economic guru Alan Greenspan's recent explanation that gold's move is "strictly a monetary phenomenon" gets closer to the truth.

Greenspan has said gold's push over $1,000 an ounce is "an indication of a very early stage of an endeavor to move away from paper currencies."

And who's endeavoring to make such a move?

China, fearing its holdings of U.S. government debt may become worthless if the dollar fails, is turning to what Greenspan has called the "ultimate source of payment": precious metals.

The Chinese know what's coming and now they're warning their citizens to take action by urging them to buy physical gold and silver.

This push towards precious metals investment is significant and surprising when one considers that private ownership of gold in China was forbidden until very recently.

This year, the Chinese government abandoned its restrictions on precious metal investment and ownership. However, there are rumors that the export of silver has been banned and the government may be looking at banning gold exports next.

"Clearly, the government believes the country is strengthened if everyone who can holds some hard currency," said Doug Hornig, editor at Casey Research.

The government is also looking to persuade Asian central banks, commodity exchanges, refiners and ETFs to move their bullion reserves to the new Hong Kong depository, he added.

What impact will China's actions have on the precious metals markets?

Many analysts feel that China will be careful not to create an over-stimulated bullion market, but the Asian nation is also anticipated to have a greater impact than the dollar on gold and silver movements over the medium to long term.

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