Could China Propel Gold to $2,000? 21 comments
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Last week Alan Greenspan noted that "Rising prices of precious metals and other commodities are an indication of a very early stage of an endeavor to move away from paper currencies.”
In other words, people are buying gold as a hedge against inflation.
Here in China, our firm SinoLatin Capital has been approached by numerous Chinese companies specifically looking to acquire gold mines in Latin America. We've studied the market for some time and we see China making several Latin American gold mining acquisitions over the next few years. How can retail investors benefit from these trends? One interesting way to play the South American gold market is AngloGold Ashanti (AU). The South African mining company is moving forward on what they consider to be "one of the most important gold discoveries worldwide in the past decade" in the country of Colombia. The project, known as The Colossus (La Colosa in Spanish), is reputed to contain reserves of over 12 million ounces. The project is facing considerable environmental scrutiny but it looks like it will move forward this year.
But back to China. How could China affect the price of gold? We live in China and spend a lot of time with local industry leaders and policy makers. We hear repeatedly that the time has come to think seriously about how to survive the perceived dollar devaluation. In some cases we note serious concern, and in other cases absolute dread over a perceived dollar crash. Over the past six months Beijing has made a series of moves to protect itself against a dollar devaluation. In a recent "BRIC Summit" in Russia several months ago, Chinese leaders came out strongly in favor of a new reserve currency to replace the dollar (including the IMF's "SDR" currency). China is also quietly purchasing mining assets and gold bullion. But the government has recently gone further. According to Financial Sense:
As recently as 2002, the private ownership of gold was prohibited in China. You could be jailed if caught with any in your possession. Beginning in 2009, in a stunning about-face, the central government removed all restrictions. In fact, as Mineweb and other sources report now it is actively pushing folks to buy some personal metal, with China’s Central Television, the main state-owned television company, running news programs cum infomercials, letting the public know just how easy it is to purchase gold and silver as an investment.
It truly is as simple as can be, because every bank sells gold and silver bullion bars in four different sizes to individuals. (Try to find the same the next time you make the trek down to Wells Fargo.) Mining companies are reportedly encouraging employees to convert some of their wages to gold on payday. Gold is traded in some form 24 hours a day. And paper proxies for the metal are also soaring in popularity. There are persistent rumors that the export of silver has already been banned. Gold could be next.
Thus China, which only yesterday was the lowest per-capita consumer of gold in the world, is bidding to become the biggest. Some analysts believe it will pass India – the top dog since forever – as early as 2010. Clearly, the government believes the country is strengthened if everyone who can holds some hard currency.
All this suggests a mania in the making, and only in the formative stage. Imagine if hundreds of millions of new consumers climb on that particular bandwagon…
Gold is up 27% over the past 12 months and last week it hit the psychologically important US$1,000 mark. Could China propel this further? From our vantage point in Shanghai this is entirely possible.
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The conquistadors have been there already.
"As recently as 2002, the private ownership of gold was prohibited in China. You could be jailed if caught with any in your possession. Beginning in 2009, in a stunning about-face, the central government removed all restrictions."
Orwell explained these stunning about faces a while ago.
China does not want gold to become exceptionally popular or it will undermine the issuance of the RMB. No government wants gold to be too popular. Also lets be clear, the chinese government would not in a billion, trillion years - confiscate gold if it undermined their power of issuance of RMB. Therefore they will be very cautious of promotion gold too much.
Selling gold to its citizens, to get their money out of savings.
Thats a more accurate assessment.
If the citizens buy gold, the Chinese can dump their US investments and the average citizen will still have valuable gold, AND a cheap currency so their exports will still sell well and unemployment will remain low. But they will also have wealthier citizens to stimulate domestic spending.
On Sep 15 10:45 AM huangthomas wrote:
> Fantasy of a gold bug. China is the number one gold producer of the
> world and only haord her own production. Wait until China start to
> sell gold to the rest of the world. All central banks, especially
> in the Europe, are selling gold in case you don't know.
On Sep 15 12:30 PM James Lewis wrote:
> I'm with Huang Thomas. When the world realises the USD is still the
> most MAJOR (note MAJOR) 'disciplined currency with respects to issuance
> and printing'. There will be a rush to sell gold at these high prices.
> Yes we can go higher, but not the rediculous heights the gold bugs
> predict as a result of the combustion of the USA.
>
> China does not want gold to become exceptionally popular or it will
> undermine the issuance of the RMB. No government wants gold to be
> too popular. Also lets be clear, the chinese government would not
> in a billion, trillion years - confiscate gold if it undermined their
> power of issuance of RMB. Therefore they will be very cautious of
> promotion gold too much.
>
> Selling gold to its citizens, to get their money out of savings.
>
> Thats a more accurate assessment.
On Sep 15 02:17 PM Mad Hedge Fund Trader wrote:
> uum Those transfixed by gold blasting through the $1,000 level have
> been missing the real action in silver. The white metal has soared
> 57% to $17 since the beginning of the year, compared to only a 22%
> move for the barbaric relic, an outperformance of almost three to
> one. I have been a raging bull on silver all year, and on May 7,
> grabbed you by the lapels and shook you senseless if you didn’t buy
> at $12.70 (click here for earlier report ). It is nothing less than
> owning gold with a turbocharger. Silver gives you a nice double play.
> Its qualities as a precious metal are giving it a major boost from
> the flight from the dollar, one of this year’s certainties. It is
> also an industrial commodity, which unlike gold, is consumed, and
> therefore gives you a call on the recovering economy. If you don’t
> think this move is real, check out the shares of the silver producers.
> Coeur D Alene Mines (seekingalpha.com/symbo...) has rocketed
> by 57% this month and is up 144% YTD, while Silver Wheaton (seekingalpha.com/symbo...),
> and Hecla Mining (seekingalpha.com/symbo...) have also done
> well. If you want to get set up on buying silver futures, e-mail
> me at madhedgefundtrader@yah... and I’ll tell you how to do it. To
> accumulate .999 fine silver dollars for only a buck over spot, or
> bullion at the lowest spreads in the market, visit mileniummetals.net/
> by clicking here. How long will it take to get to the old high of
> $50? The Hunt brothers must be grinding their teeth.
On Sep 15 10:45 AM huangthomas wrote:
> Fantasy of a gold bug. China is the number one gold producer of the
> world and only haord her own production. Wait until China start to
> sell gold to the rest of the world. All central banks, especially
> in the Europe, are selling gold in case you don't know.
On Sep 15 03:23 PM John Connor wrote:
> There are serious RUMORS that China is moving to a gold backed currency
> to make their currencies an international currency, which propelled
> the USD to become the world's reserve currency - because it was backed
> by gold and silver out of the brenton-woods agreement..
On Sep 15 10:45 AM huangthomas wrote:
> Fantasy of a gold bug. China is the number one gold producer of the
> world and only haord her own production. Wait until China start to
> sell gold to the rest of the world. All central banks, especially
> in the Europe, are selling gold in case you don't know.
If they did who would have a big enough gun to make them deliver????
but I do know the following-
-That a year or two ago the gold bashers were sneering at gold's rise in price and were practically boasting the yellow metal would sink to $400 per ounce.
-Asian central banks are buying, not selling, gold.
www.commodityonline.co...
-South African gold mines, once the most productive in the world, are declining in gold production.
mining-technology.com/...
And we get this-
www.miningweekly.com/a...
"Gold production is “in crisis” and a gold price of $900/oz to $1 000/oz is needed to arrest the downward trend, says AngloGold Ashanti CEO Mark Cutifani on page 13 of this edition of Mining Weekly.
Cutifani says that the world has seen a decline in the production of gold across the globe in the last seven years, and is facing another period of decline in the next five years.
There has been a 20% to 30% production decline in South Africa in the last five years and grades are continuing to diminish in opencast mines around the world."
All these things do not indicate a fall in the price of gold.
The reason I root for a rise in gold's price is due to the fact when gold goes up silver goes up with it, sort of like a golden balloon rising into the air with silver balloonists in the gondola enjoying the ride.
Platinum skyrocketed well above $2000 an ounce last year.
When Clinton was President, Oil was about $25 a barrel and I am sure if you told somebody back then that Oil would sell for $150 a barrel they probably would have laughed at you. But gold did go to $150 per barrel.
As another poster wrote earlier, there is only about 1.5 ounces of gold per person on the planet. What is the average cash worth in dollars of each individual on the planet?
Expect some sales from India and scrap sales, but those are a minor drop in the bucket in the scale of this event.
Recall, all the gold ever mined in history would sit on a single tennis court to a height of less than 20 meters. That's not much for 6 billion people to dig out. Silver is in an even worse shortage. Hopefully, you have yours.
On Sep 15 05:34 PM worker72a wrote:
> Yet, all the gold ever mined throughout history would only average
> out to about one and one half ounces per person alive today. Let
> them sell. I'll take yours, mine and every other person foolish enough
> to trust government issued paper money.