Surely this is another "loss of face" for china, infact you almost feel they are now red in the face from being slapped down again.

Yesterday we read online about China kicking "own goals" on their play on Aluminium, and how their plan to support the industry has led to a massive stockpile and China now dumping Aluminium back on the market and lowering revenue for the companies they were trying to save.

Now 5 dramatic and alarming factors have emerged overnight in regards to China and particularly the link with the Austarlian Mining sector. Notably it now appears that China will attempt to lower commodity prices by going on a buying strike, although this is not a clear cut argument or fact.

Extracts of the following are from a story by Robert Gottliebsen on http://www.businessspectator.com.au

First, according to the Fairfax China correspondent John Garnaut four members of the Rio Tinto sales team have been detained in Shanghai since Saturday and there have been raids on the Rio Tinto China offices. Those detained and probably arrested include an Australian citizen, Stern Hu. This development shows that the loss of face went far beyond Chinalco and extended deep into the Chinese administration.

Second, I may be wrong, but I link this outrageous extension of Rio Tinto toughness to the challenge China is facing in one of its key resources provinces, Xinjiang. We are seeing a different side of China and we in Australia are going to need all the talents of Kevin Rudd to steer us through this – we should avoid aggravating the situation with politically correct remarks.

Third, Chinalco has reaffirmed the need for the Chinese mineral industry to make strategic acquisitions overseas in a drive to secure supplies. Chinalco’s Xiao Yaqing says: "The crisis presents a rare opportunity for our domestic companies to initiate cooperation with foreign enterprises. When the time is ripe, overseas acquisitions, strategic investments and joint development could all be considered."

That’s the Chinese way of saying "get out there and do it

Fourth, as part of those Chinalco remarks I understand the Chinese are setting up at least one large fund to buy into struggling junior explorers around the world in an attempt to break what they see as the Rio Tinto-BHP ring around them. The Chinese think long term.

Fifth, there is further evidence that the Chinese are preparing to use their stockpiles of metals to lower prices to make it easier to buy into mineral companies. UBS analysts led by Peter Hickson say that China may cut refined copper imports to around 100,000 tonnes a month in the July to December period – around two thirds of the average of 280,000 tonnes a month in the first five months.

According to a Mining Journal report, UBS claims there are "clear indications that China is now overstocked". The Strategic Reserve Bureau is offering up to 100,000 tonnes of copper to the market and traders are preparing for exports of the metal.

UBS estimates that China may have stockpiled 500,000 to 700,000 tonnes of copper in excess of its industrial needs in the first quarter – only 300,000 tonnes of which "is apparently destined for the Strategic Reserve Bureau".

However the Mining Journal quotes a different view from Yang Gang, a trader at LG International Corp, who says Chinese imports "couldn’t decrease sharply in the second half". Many long-term contracts have been booked and importing copper as a way to obtain finance is very active, he says.

Our five dramatic developments show that we have entered uncharted space.

All of these points show that China has a massive influence on commodity prices going forward and the individual share prices of mining companies around the world, investors would do well to understand if China is sniffing around or investing in mining shares you may or may not hold.

I currently do not own Rio Tinto or BHP shares.

The follwing is a story posted by John Nadler, senior analyst at Kitco, i hope it helps some people get over the "complex" they have with the gold conspiracy.

As John points out though, some people are just too far gone at this stage to save, but here goes anyway.

Good Morning, Following yesterday's selling wave that brought values down to very near $920 an ounce, gold prices recovered slightly during the overnight hours. Mild bargain-hunting was seen in Asian markets and the precious metal was seen as benefiting from a small loss in the dollar (at 80.05 on the index) and a better than $1 rise in crude oil (now at $71.05 per barrel) primarily due to an upcoming report due to show US inventories on a declining trend for the past month. Otherwise, the markets were rather calm as the new quarter got underway, and only the US employment-related statistics were seen as making any ripples in the summer market doldrums. Expectations are that job-cut projections in the US could come in at a 15-month low for the month that concluded yesterday. Globally, a mixed bag of economic news remains the daily norm. China's manufacturing expanded for the fourth month in a row, as a result of its own stimulative actions over the past year. In Europe, the initial slowness to recognize the extent of the credit problem is creating a string of current problems. Thus, initials such as KBS,AIB, and others, are now making the rounds in the local headlines related to the crisis. In the UK, some 55,000 banking jobs are now being wiped off the slate, in order to keep new owners (the government) happy. Spot gold prices started the midweek session with an $8.40 gain, quoted at $935.00 per ounce. The gain was still largely seen as an oil-led bounce ( we say, quite a bounce - almost enough to undo the damage in full) from the sell-off that took place on Tuesday, and the recapture of the $940-plus area is deemed as essential before significant progress can be made to higher ground. Support is thought to extend from the $912/15 area to current levels near $930. The market go a shot in the arm after the dollar lost sizeable ground on the heels of this morning's ADP report. Marketwatch indicates that: "The U.S. dollar declined versus major counterparts Wednesday after ADP Employment Services said private companies cut 473,000 jobs in June. The dollar, a measure of the greenback against a trade-weighted basket of currencies, traded at 79.905, down from 80.179 in North American trading late Monday. Economists surveyed by MarketWatch expected a decline of 498,000 jobs. Still to come, a report on manufacturing is expected to show improvement in that sector's outlook." Traders may be reluctant to take on any fresh and/or sizeable positions ahead of Friday's holiday closure in the markets, but news of major significance such as the jobs figure, will force quick adjustments in thinking, if it hits between now and tomorrow's close. Silver added 12 cents too start at $13.67 per ounce, while the noble metals showed a bit of a mixed picture at the open. Platinum rose $9 to $1184 and palladium dropped $1 to $248 per ounce. The only bit of automotive news seen today, was an estimate that GM's unwinding might add up to 1.25 billion dollars. Expensive funeral, that. Something else that deserves a decent burial is the (still) on-going gold/silver market manipulation talk. One of our readers from Down Under kindly pointed us to an article on GreenFaucet.com - whose lead mantra reads "markets...demystified" written by Brad Zigler at HardAssetInvestor.com just yesterday. Here is the essence of what Mr. Zigler conveys: "Central banks have, indeed, leased gold in the past, and they're likely to continue leasing as a tool to manage their currencies. That, like it or not, is a central bank's mandate: to deploy its reserves - of foreign exchange and metal - to tweak and fiddle with the value of the legal tender. U.S. banks do, in fact, account for a substantial portion of COMEX open interest. That interest, too, has been pretty much entirely skewed to the short side since the Commodity Futures Trading Commission (CFTC) started reporting banks' market participation two years ago. But is the existence of a large short position prima facie evidence of a manipulation? For a prosecution of manipulation under the Commodity Exchange Act to succeed, monopoly or domination of the market on the part of the alleged manipulators must be proven. In addition, it must be demonstrated that the perpetrators' manipulative acts resulted in the creation of an artificial price. Put simply, making a futures manipulation charge stick boils down to answering two questions: Would the current gold price be different if the alleged manipulation hadn't occurred? More importantly, do the banks have the actual ability to influence the price of metal? As a percentage of total open interest, U.S. banks' short interest has grown nearly 23% since June 2007. Over that same time, the COMEX spot price has risen almost 47%.   Table 1: Bank Participation in COMEX Gold Futures (05-Jun-07 to 02-Jun-09)   Mean Reporting Banks   Median Long Interest   Median Short Interest   Short Interest Correlation to COMEX Price Lagged Short Interest Correlation to COMEX Price 4 0.8% 13.7% 0.9% 14.0% If banks were attempting to manipulate the price of metal downward over the past two years, they appear to have been singularly unsuccessful. Short interest in gold futures has ranged between 1.8% of the total market (July 2008) to 31.9% (June 2009). In that time, there has been no effective correlation (<1%) between the COMEX spot price and the size of banks' short interests. To prove the theory, we'd need to see a negative correlation. That would indicate that larger short interests coincide with lower metal prices. Lagging the interest a month behind the price - in essence, allowing the short interest a month to impact the market - actually nudges the correlation in a positive direction. In other words, a build in the banks' short interest marginally correlates with increases in the price of gold. There's really no conclusion to make here other than that banks' short futures exert little, if any, effect upon gold's cash price. If futures were being manipulated downward, COMEX prices should trade significantly under the London cash price. The standardized basis between the London A.M. fix and the COMEX spot settlement price has averaged just 2 basis points (0.02%) over the past year. Excursions outside one standard deviation (±1.8%) are mostly attributable to market volatility in the 8½-hour gap between the London fix and COMEX settlement. Of particular interest is the recent contraction in the variance, i.e., standard deviation halved to 0.9%, at the same time banks' short bias increased (see Figure 3). Much has been made of the supposed "concentration" in the U.S. banks' precious metals futures positions. Observers have noted that a bare handful of financial institutions hold a significant portion of market open interest. Because of the lopsided way in which short interest has outweighed the banks' long positions, these observers have posited manipulative intent. Table 2: Bank Short/Long Ratio in COMEX Gold Futures (05-Jun-07 to 02-Jun-09)   Median Short/Long Ratio   High Short/Long Ratio   Low Short/Long Ratio 18.4 338.8 0.6 However, the correlation between gold futures prices and banks' short/long ratios appears to be no different than their price-to-short interest coefficient. Price depression isn't coincidental with spikes in the banks' short/long ratio. Some claim that short positions as large as those of U.S. banks in the gold market are unprecedented. Not so. The short interest in Australian dollar futures held by non-U.S. banks have, over the past two years, been twice as large as the gold positions held by American institutions. Table 3: Bank Participation in CME Australian Dollar Futures (05-Jun-07 to 02-Jun-09)   Mean Reporting Banks   Median Long Interest   Median Short Interest   Short Interest Correlation to Interbank Cross Lagged Short Interest Correlation to Interbank Cross 4 1.3% 28.1% 24.0% 18.6% If a speculative intent for the banks' short Aussie dollar positions was imputed, it would appear these institutions were more successful in suppressing the currency's value than U.S. banks were in keeping gold's price in check. Aussie short/long ratios have exhibited much greater variance than those seen in the gold market. Most notably, the high ratio for the dollar was eight times the size of gold's high ratio. Bank short/long ratios in the currency have registered over 100-to-1 for a third of the two-year CFTC reporting horizon. Gold short/long ratios, in contrast, topped the century mark only once. Table 4: Bank Short/Long Ratio in CME Australian Dollar Futures (05-Jun-07 to 02-Jun-09)   Median Short/Long Ratio   High Short/Long Ratio   Low Short/Long Ratio 14.8 2,835.9 0.0 Advocates of the manipulation argument assert that banks are engaging in an inherently speculative venture. Since large short interests in gold futures seem to have little effect upon metal prices, though, one naturally has to wonder why these for-profit enterprises would engage in these transactions. After all, bank management must answer to shareholders and directors. Unproductive or, worse, unprofitable, lines of business would likely raise eyebrows in the boardroom. No tenable scenario has been offered to explain how these institutions would actually profit from the supposed suppression of gold prices. The banks' relationship to the Federal Reserve is often posited as evidence of a collusion of some sort, but the mechanics remained unspecified. Commercial banks do, indeed, aid the Federal Reserve in the execution of monetary policy. That is, in fact, exactly what primary dealers - money center banks that bid at each auction of Treasury paper - do. Knowing that these dealers will provide a minimum bid for each offering of bills, notes and bonds allows the government to reliably refund at least a portion of its debt, and gives the primary banks an opportunity to obtain inventory that can be subsequently marketed to secondary financial institutions. The bottom line is that the 16 or so banks and brokers that make up the primary market - including the dealing desks of the big gold derivatives players, HSBC Bank USA and JPMorgan Chase - undertake risk in exchange for a profit opportunity by acting as a wholesaler of government paper. There's no clear business model put forth by advocates of the manipulation argument for banks' short gold futures dealings. Of course, there is another plausible argument - hedging. The speculative position limit for COMEX gold futures is 6,000 contracts. The latest CFTC report shows three U.S. banks holding an aggregated net short position in excess of 123,000 contracts. If the banks were trading a proprietary speculative strategy, they'd be collectively limited to an 18,000-contract net position. Exemptions to position limits, however, are granted for bona fide hedge transactions - that is, positions that reduce a commercial enterprise's risk arising from changes in the value of its assets or liabilities. A short futures hedge would mitigate the risk engendered by a bank's undertaking of long metals exposure through physicals, forwards and swap agreements transacted with customers. Hedging would allow the banks to become more or less indifferent to the metal's market price. At the very least, then, 105,000 contracts, or 85% of the banks' net gold futures positioning is the likely consequence of customer business flows rather than proprietary or manipulative interests. A look at the financial institutions' call reports will confirm the size of the over-the counter gold derivatives on their books. The hedge exemption would also explain the apparent difference in the regulatory attitude toward bank futures dealings and those of the Hunt brothers in the 1979-1980 silver market.  The essential difference, of course, is intent. The Hunts attempted to corner the market by amassing long positions in physical silver and silver futures. The Hunts were engaged in a purely speculative venture; on one side of the market. There was no legitimate business risk offset by their long futures positions, and therefore no hedge exemption was warranted. It's unlikely that the points raised here will quiet the manipulation argument. These things tend to have lives of their own. Remember, though, that this, like the previously published article, is a challenge to the assertion of criminal activity in the futures market alleged against U.S. banks and not an apologia for the government's monetary policy. What we can say is that, so far, there's been no evidence put forth to indicate that banks' futures market trading has risen to the level of criminal activity." For our part, we have stated that there is no purpose in trying to manipulate something that is owned in larger amounts by individuals than by central banks. That something is gold. There would have been no $500 gold price, let alone $1000 gold, if the sinister forces were adequately doing their job. There would have been spectacular failures of the sinister shorts, way before the word 'subprime' was created. As for concentration of positions, sure they are concentrated. Why? Because we have literally shrunk down to one single (or less) handful of firms willing and able to make a market anymore. Will any the above convince those who still continue to see gold's inability to get to the stratosphere as a clear sign that something must be very wrong? Surely, it will not. A religion is a religion, to be sure. After all, it was not that long ago that we posted a great article from WIRED magazine which delved into why it is that we all need a good conspiracy theory around and/or some very dark sheep to point our collective fingers at. Hey, it makes life more...interesting. So long as one does not throw good money out to read science fiction. For that, the fantasy section isles at Borders will do a whole lot better. It is time for market projections, once again. Short and sweet. And, bear in mind, numbers are just that - a tool for traders. Our three-decade old motto has been "IF you buy for the RIGHT reasons, you can IGNORE the price." Gold - we raise our estimated price trading range by $50 on each end, for the next six months. $730 to $1030 with the same allowance we gave back at the end of December, for a $100 under/over shoot if spectacular conditions arise (examples: mass asset liquidation / Kim Jong Il losing it completely). There remains the chance of one more run/attempt to four-digits, but judging by the number of media mentions and general investor sentiment, the market is possibly heading for calmer waters, at somewhat lower levels than the $945 average seen in June. Silver - Once again, a likely to be wide range and offering plenty of volatility and/or opportunity to make a buck. From $10.50 to $16.50 per ounce. Global economic conditions will continue to impact the white metal first and foremost. As we do not see those improving for nearly one year out, the progress towards anything like $20 will be quite a task. Platinum - Ranging from $950 to just above $1250 per ounce. Keep checking the pulse of the auto sector, please. Palladium - Ranging from $190 to just above $295 per ounce. As above. We still like the metal as a possible substitute for 'expensive' gold (jewelry) and platinum (autocats). Rhodium - What??  You did not actually expect an actual number now, did you? How about a guess? Okay, from $990 to $2900 per ounce. Happy Trading.   Jon Nadler Senior Analyst Kitco Bullion Dealers Montreal   ****   Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

After having a bit of a think and doing some research i noticed a few things, China are buying massive amounts of copper, even from a domestic point of view, China are buying uranium, and are planning multiple nuclear reactors, and China are buying loads of gold for their reserves.

In April/May i started to look into the mining sector, as it was becomming apparent that China was hoarding commodities, especially from Australia. On further study i found China could not get enough copper, so in we went, shares in Equinox, which has a large deposit, around 30 years supply, plus some uranium mixed in. Shares in OZ minerals, another fantastic copper play, and a few speculative stocks for good measure. One that stands out particularly is a company named EXCO resources which has a large unmined copper resource and a gold deposit.

So this is where i stand at present, invested in Copper, with Uranium as a side business, and some small and medium gold stocks, like GOLD ONE for example. This may seem a rather small play on the wider markets, but when you look at the lack of copper mines comming online in the next 5 years, the tight supply of uranium, and the inflation play for gold, i think this is where you need to be. I see no point in being in multiple commodities that may or may not pick up steam going forward. I want what people want NOW, and what they will want even MORE of going forward.

It may take a few years for this to all play out, but im certain that investing in Commodities with supply issues and strong demand, in strong companies, in the mining sector, in Australia, is the way to go. As for banks and real estate shares i realy could not care less, im betting on China and if the rest of the world just happens to come along for the ride somewhere down the line then all the better.

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My second piece on Gold is about the herd mentality. Anyone who has spent even a remote amount of time watching or playing the markets knows that the old adadge of "most of the people are wrong most of the time" is a pretty sound bet. Which is why being a contrarian pays the big bucks.

So yesterday i was surfing some emails when i came across a "well known" market blog which was running a guess the price of gold this year contest. I must say i was truly amazed by the results.

It was truly scary to see that around 80% of respondents guessed or "punted" on gold going to between $1100 and $1300, the most common being $1200 or $1250 from what i could see.

So let's just think about this for one minute, nearly everyone is buying gold and going to sell it at $1250! My question is, who is buying all this gold at $1250?

The answer i put my money on is NOONE, because you can pencil this in your diary, gold will definately not go to $1250 and then sell off, the chance of 80% of people being even remotely right on this gold call is up there with winning lotto.

If i was a betting man, which i am!, i will be betting that gold either goes down from here or goes up to well beyond $1250.  Check it out for yourself.

This backs up my belief that this is just a restocking of metals and divestment of $US by China at the market low in March, when we saw record low commodity prices and $US strength combine for a China buying spree of epic proportions and the catalyst of the commodities (and stocks) bear market rally.

Here is the article published today on Business Spectator.

A Green Shoot Withers.

There seems to be a colossal iron ore arbitrage going on in China.

According to a Reuters report a few days ago, and then another yesterday from ANZ’s head of commodity research, Mark Pervan, there are currently 80 bulk ships waiting off China to unload iron ore. That’s 10 per cent of the global Capesize vessel fleet.

A huge spike in demand for iron ore from China has, in turn, pushed the Baltic Dry bulk shipping rates index up 200 per cent since early April. The Baltic Dry index is a composite of four indices, of which the Capesize index has seen the biggest rise – up 315 per cent.

This in the midst of a global recession. The iron ore shipments are simply not supported by any underlying increase in demand for steel. Steel production in China was relatively strong in May – an annual rate of 544 million tonnes, compared to 500 million in 2008 – but steel inventories are also rising rapidly. Exports are still falling, albeit at a slower rate, and underlying steel demand is weak.

In fact the iron ore unloaded in China this year is being stockpiled, mostly at or near the ports. Those facilities are now full.

The demand for iron ore has been driven by traders playing the arbitrage between the low iron ore spot price at present and the expected long term contract prices – that China has not yet signed off on, but is moving towards.

The spot price for iron ore fines has fallen 60 per cent from its 2008 peak. Japanese and Korean steel mills have agreed to a 33 per cent cut in the contract price for the next financial year; the Chinese are holding out, complaining about the BHP/Rio joint venture plan (as are the Japanese, Korean and European steel mills).

The trade looks like a sure thing, especially with the Chinese government throwing its weight around. However, a couple of days ago the Steel Business Briefing reported rumours that China would accept 33 per cent as well, but that would produce a decent, quick return on investment.

However, in the process of playing this arbitrage, the traders have created a massive supply overhang. Mark Pervan says they have simply misread the market, and that steel demand will be unable to absorb the iron ore stockpiles.

While the stockpile overhang clears, the shipping rates are likely to crash again. Those who have been seeing the rally in the Baltic Dry index as a leading “green shoot” are likely to be disappointed – indeed the index has fallen 15 per cent in the past four days.

Morgan Stanley’s Asia chairman, Stephen Roach, has just put out a note entitled Asian Relapse, in which he suggests that China is vulnerable to relapse in 2009 as the government stimulus fades and is not replaced by a US-led snapback in external demand.

The iron ore arbitrageurs may have made the coming relapse a little more severe.