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A Trifecta of PBOC Announcements Gives Owners of Gold a Winning Ticket

|Includes: Kinross Gold Corporation (KGC)

Precious Metals Outlook: Keeps getting better…

Over the last couple of days the People’s Bank of China (the Central bank) or related persons, have issued a series of statements that are nothing short of spectacular for Gold Bulls.

I am writing today in bold and italicized to inform readers that proverbial watershed events have occurred in the Gold markets.

I would begin by directing your attention to the following Kinross for Red Back story…

Kinross spends $7.1 billion to buy Red Back

Kinross Gold Corp. said yesterday it can take the assets of Red Back Mining Inc. “to the next level” as the firm explained the logic of its proposed $7.1-billion (U. S.) acquisition to investors.

…When a major acquisition occurs benchmarks are set and Wall Street begins to price in takeover value. We would expect mining companies to enjoy increased interest in the weeks to come.

Next, I will offer up the following three stories out of China as further proof of watershed developments. The stories are so sweet and speak for themselves that any more typing on my account would be superfluous.  

         Treasuries Lack Safety, Liquidity for China, Yu Says  

Aug. 3 (Bloomberg) — U.S. Treasuries fail to provide safety or liquidity when it comes to managing China’s $2.45 trillion foreign-exchange reserves, said Yu Yongding, a former central bank adviser.

 “I do not think U.S. Treasuries are safe in the medium-and long-run,” Yu, a member of the state-backed Chinese Academy of Social Sciences, wrote yesterday in an e-mailed response to questions. China is unable to sell the securities in a “big way” and a “scary trajectory” of budget deficits and a growing supply of U.S. dollars put their value at risk, he said.

The State Administration of Foreign Exchange, which manages the nation’s reserves, said last month that U.S. government debt has the benefits of “relatively good” safety, liquidity, low trading costs and market capacity. China’s holdings of Treasuries, the largest outside of the U.S., totaled $867.7 billion at the end of May, down from $900.2 billion in April and a record $939.9 billion in July 2009.

China Plans to Help Bullion Producers Expand Overseas, Central Bank Says

China, the world’s largest gold producer, will support overseas investment plans by “large- scale” bullion companies by backing them financially, the People’s Bank of China said.

Banks should extend credit lines to gold producers and offer loans for overseas acquisitions, the central bank said today in a statement on its website. The government will “support” the companies when they issue corporate bonds and help reduce financing costs, it said, without clarifying what that meant.

This is the first time the Chinese government has singled out bullion producers for financial support in overseas purchases. Global gold mining takeovers this year set a record after Kinross Gold Corp. yesterday agreed to buy Red Back Mining Inc. for about $7.1 billion.

China “will place heavy emphasis on supporting large-scale gold producers in their development and overseas expansion plans,” the central bank said in the statement.

The Chinese central and provincial governments either fully or partially own stakes in China National Gold Corp., Zhongjin Gold Co., Zijin Mining Group Co. and Zhaojin Mining Industry Co. The Chinese gold industry overtook South Africa to become the biggest producer in 2007.

China to Further Open Gold Market For Foreign Trading, Imports, PBOC Says

China will let more banks import and export gold and open trading further to foreign companies as near-record prices and falling stock markets spur demand in the world’s second-largest buyer of the metal. Gold prices gained.

China may “increase foreign members on the Shanghai Gold Exchange and will also study ways to allow foreign qualified bullion suppliers to deliver to the exchange,” the People’s Bank of China said today. Banks may also be allowed to hedge onshore gold positions overseas to encourage the development of yuan-denominated derivatives trading, it said.

Gold demand in China, the world’s largest producer, gained in the first half as government measures to cool the property market and falling equities spurred investment, the Shanghai Gold Exchange said July 7. Gold climbed to a record in June as investors sought to protect their wealth amid concerns about the global economic recovery, and is headed for a 10th consecutive annual increase.

The latest steps “are extremely encouraging and seem certain to lead to increased gold demand in a country that has recently been contending with India for position of the largest consumer of gold in the world,” said George Milling-Stanley, the New York-based managing director of government affairs at the producer-funded World Gold Council.



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