Gold Bulls Must Love The Hong Kong Protests

It appears that the two steps forward, one step backwards approach of mainland China isn't working as Hong Kong citizens are protesting again. The increasingly violent protests have plunged Chinese-ruled Hong Kong into its most serious crisis in decades, and the situation appears to be getting worse every week. What does it imply for the gold market?

Hong Kongers Protest

On Monday, Hong Kong's Airport Authority canceled flights as demonstrators poured into its main terminal. What is going on in Hong Kong? The protests began over plans that would have allowed extradition from Hong Kong to mainland China. Although the bill was suspended, the protests continue, as people demand democratic reforms. The problem is that although Hong Kong - as a former British colony - still enjoys freedoms not seen in mainland China, they are on the decline. The protesters say that mainland China is meddling in Hong Kong, citing examples such as legal rulings that have disqualified pro-democracy legislators.

Another problem is that the Hong Kong's leader is currently elected by a 1,200-member election committee, which is a mostly pro-Beijing body chosen by just 6 percent of eligible voters. And even this sham democracy could end in 28 years when the period of a high degree of autonomy under the principle of "one country, two systems" negotiated in a deal regulating the status of Hong Kong with the UK expires.

The protests present a serious challenge to mainland China. Most people identify not as Chinese, but as Hong Kongers, while some young activists have even called for Hong Kong's independence from China, giving a real headache for the Beijing government and adding to concerns about the future of the Red Dragon.

China Slows Down

China faces not only political but also, or even mainly, economic problems. The economic growth has recently slumped to its lowers level in nearly three decades. The trade war with the U.S. hit the GDP growth, but this is not the only problem. Another, and possibly the most important, is the exhausted debt-fueled growth. China's overall debt is enormous, accounting for about 15 percent of the total global debt.

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