Will Evergrande Make Gold Grand? – Investing.com

Will Evergrande Make Gold Grand? – Investing.com

Evergrande’s debt issues are a symptom of China’s deep structural problems. If the crisis spills over wider, gold may benefit, but we are still far from such a scenario.

Beijing, we have a problem! Evergrande (HK:), one of China’s largest real estate developers and biggest companies in the world, is struggling to meet the interest payments on its debts. As the company has more than $300 billion worth of liabilities, its recent liquidity problems have sparked fears in the financial markets. They also triggered a wave of questions: Will Evergrande become a Chinese Lehman Brothers? Is the Chinese economy going to collapse or stagnate? Will Evergrande make gold grand?

The answer to the first question is: No. The possible default of Evergrande likely won’t cause a global contagion in the same way as Lehman Brothers did. Why? First of all, Lehman Brothers collapsed because of the run in the repo market and the following liquidity crisis. As the company was exposed to sub-prime assets, investors lost confidence and the bank lost its access to cheap credit. Lehman Brothers tried to sell its assets, which plunged the prices of a wide range of financial assets, putting other institutions into trouble.