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November 23rd China established a new air-defense identification zone (ADIZ) in the East China Sea. A move that angered Japan, South Korea, and the United States.
The South China Sea would likely be next on their agenda and this would anger Taiwan, the Philippines, Vietnam, Malaysia, and Brunei. These are regions where China is claiming fishing rights and access to valuable under-sea hydrocarbons and minerals.
China is requiring aircraft to report in before entering the zone. China's Defense Ministry said the Chinese military would take "defensive emergency measures" against aircraft that didn't obey the rules in the new zone. No further details were provided.
In addition, China’s first aircraft carrier, the Liaoning, was making its maiden voyage this week to the South China Sea.
Shortly after the new air defense zone was announced, both South Korea and Japan flew through the region and were met with warnings from several Chinese fighter jets. On Tuesday November 26th the United States flew two B-52 bombers into the airspace.
While China only made stern verbal statements, there are many across China saying the government needs to stand up and provide a tougher response. What specifically that might entail no one knows. However if it occurs, you can bet the price of gold will move higher - gold investors love conflict and instability.
Some within China are saying the Chinese Military should start flying (unannounced) into the United States Air Defense Identification Zone (ADIZ).
CHINA CANNOT “LOSE FACE”
Many people do not understand the importance of “Face” in China but it is very deeply rooted in Chinese business and culture. To “lose face” in China is a very bad thing in your family, business, or within government.
Now that the Chinese government has (very publicly) established this new air defense zone, they cannot easily change it or fail to defend it without the risk of “losing face”. Unlike other countries that may have more flexibility, the Chinese government will be under tremendous public pressure at home.
We must ask ourselves how many times the Chinese will let foreign countries test these new territorial limits before “something” (either intentional or accidental) occurs to prove they have control over the air space.
IMPACT ON GOLD 
In the event a serious confrontation occurs (assuming 2014), it will rattle investor nerves. The media (in typical media fashion) will milk the story for all it is worth and the subsequent reaction in the gold markets would be bullish.
We would not only see a flight to gold but also underlying gold equities.
During 2013, the risks of Iran (amongst many other things) helped support a higher gold price but without Iran in the equation, gold has been drifting lower again.
As gold has fallen, the junior gold exploration stocks have fallen below the devastating levels we saw in early July. Based upon the 50 junior companies I use as a benchmark, I show the current average down to $15 per gold ounce (with many excellent companies like PMI Gold Corp. (TSX: T.PMV, Stock Forum).T trading far below that near $3/oz).
With the juniors all trading near lows, any serious confrontation with China could setup a powerful (albeit short term) rally in the better quality junior gold stocks.
Iran will become old news soon and a collapse of the U.S. dollar is not going as gold bulls had hoped. That means gold investors will want something new to focus on (worry about). And China’s new air defense zone may be just what the doctor ordered to help cure gold investor blues in 2014.