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« Happy Thanksgiving Day to All of Our American Subscribers | Main | Gold: A Quick Update »
Wednesday
Nov252009

How and Why China Will Flood the Gold Market

In this mornings mail bag we have this 'take' on China By Jeff Clark, Editor, Casey’s Gold & Resource Report

As you read this, the Chinese government is doing an extraordinary thing... something nearly unheard of in the modern world.

It is encouraging citizens to put at least 5% of their savings into precious metals.
The Chinese government is telling people gold and silver are good investments that will safeguard their wealth. After last year's meltdown in the stock market, people believe it. After all, Chinese citizens don't receive government retirement money... and they don't have company pension plans like people in many other countries do.

This is why folks in China are lining up outside of banks, post offices, and the new official mint stores to buy gold and silver (they especially like silver because it's cheaper per ounce).

The Chinese attitude toward gold and silver is a striking contrast to the American attitude right now. I don't recall a TV or radio ad from my congressman or President Obama encouraging me to buy gold or silver. Does your bank sell silver bars? Are gold mints popping up in your neighborhood? Are any of your friends, family, or coworkers scrambling to buy precious metals?

In spite of a few ads on television and satellite radio, buying gold and silver in the U.S. is still largely seen as a fringe-group activity. That's not the case in China. And in the big picture, there are three distinct trends occurring in China today that many in the Occidental world are not paying attention to.

First, look where China stands as a gold-producing nation.

China worlds largest gold producer Casey.JPG


In 2008, China produced 9,070,000 ounces of gold, exceeding all other countries. Further, its production continues to rise, while many of the top-producing countries are in decline.

Second, China had the lowest per-capita gold consumption of any country over the past half-century. This year, it is widely expected that Chinese demand for gold will surpass that of India. In other words, they'll also become the world's No. 1 retail buyer.

Third, the Chinese government has been using its foreign exchange reserves to buy gold – a lot of it – and doing so on the sly. This past April, Chinese officials made a surprise announcement that they had been secretly buying gold since 2003, increasing their gold reserves by 76% to 33,886,000 ounces. The Chinese government now owns 30 times the gold it held in 1990. And China is believed to be a leading candidate to buy some or all of the 12.9 million ounces the International Monetary Fund says it will sell.

But all this production and all this buying isn't enough...

Even though China is the world's seventh-largest holder of gold, gold comprises but a tiny fraction of its reserves, as shown in the table below.

World Gold Holdings.JPG


What would happen to the gold price if China increased its gold reserves to just 5%? What about 10%? To overtake the U.S. as king of the gold hill, it would have to buy all the gold held by the governments of France, Italy, and Germany combined. Can China really do any of that?

At $1,000 gold, to push China's gold holdings to 5% of reserves would take $55.3 billion; to 10% would cost $144.4 billion; to be the world's top gold dog would run $227.6 billion.


Chinese reserves are approaching $2.3 trillion, of which almost 70%, or $1.6 trillion, are denominated in U.S. dollars. The cost to become the world's biggest holder of gold would be a pittance compared to the amount of money China has available. In other words, money is not a problem.

Combining the country's massive holdings of dollars and the very real likelihood those dollars are going to lose much of their value, the motivation to buy tangible assets is urgent.

Further, keep this in mind: China's reserves continue to grow. Therefore, the country must continue buying gold (or consuming its own production) just to maintain the small gold-to-reserves ratio it has, let alone increase it.

In addition to the government buying precious metals, Chinese citizens will continue gobbling them up, too. Demographics alone tell us why.

Government statistics show the average urban household in China has about US$1,300 in disposable income. Multiply that by the number of urban households in China and you come up with roughly $36 billion in available capital.

According to precious metals consultancy CPM Group, about 9.5 million ounces of gold will be turned into coins this year (including "rounds" and medallions). At $1,000 gold, that's $9.5 billion, or only about one-third of the capital available in China.

The number is more striking for silver: Total coin production this year is expected to hit 35 million ounces, equaling $615 million or just 1.7% of the available capital in China. Of course, a lot of Chinese people want cars and refrigerators, etc., but it won't take much of a shift of this capital into gold and silver to have a major impact on the global retail precious metals market. It may already be under way.
And long-term projections show the demographic trend won't slow down: The middle class in China is expected to increase by 70% by 2020. So over these next 10 years, more Chinese and more money will be coming into the precious-metals markets, all at a time when inflation is almost certain to be high, adding to gold and silver's appeal. Couple this with China's long-standing cultural affinity for gold and you have the makings for a potentially life-changing gold rush.

If I were a crime detective, I'd say China has the motive, means, and opportunity to push gold and gold stocks much higher.

If you're interested in taking a stake in China's booming silver market, make sure to read the latest edition of Casey's Gold & Resource Report. Jeff has turned up a small company poised to become one of the dominant mining companies in China. This company is sitting on an incredibly rich silver property... it's heavily owned by its blue-chip management. It's the one stock to own if China goes "silver crazy." You can learn about this and all other stocks recommended in Casey’s Gold & Resource Report for just $39 per year. Try it risk-free for 3 months here.

*************************************************************************************
Hold on tight it is still going to be a white knuckle ride so please don't go too crazy on any one particular stock or vehicle, make sure that you can live to fight another day.

Finally, please, please, please, comment on our articles, they are really useful for us and our readership, thanks!

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.


For those readers who are new to this site and are interested in the nuclear power sector that is currently coming back to life, you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

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Reader Comments (6)

GOOD POST AS USUAL , HAPPY THANKS GIVING AND A SAFE ONE TO OUR TROOPS , LET US SET A PLATE OUT FOR THEM , ..ALSO A NOTE REGARDING THE CHINESE PEOPLE ,..I WISH THEM WELL , AS THEY HAVE HAD A BOOT ON THEIR THROATS FOR DECADES , VERY HARD WORKING PEOPLE , THAT DESERVE A BREAK , ..UNLIKE THE ACORN MOB...BEING A VERY HARD WORKING PERSON , IT MAKES ME SICK TO SEE FAT LAZY FOLKS , SIT ON THEIR BUTTS AND SQUAWK FOR MORE FREE'' FOOD AND MONEY , ..THE CHICKEN -IN- CHIEFS 'PEOPLE'....ENJOY YOUR DAY EVERY ONE ..BLESSINGS TO THE BOOTS ON THE GROUND !

November 26, 2009 | Unregistered Commenterbonbon

The Chinese have good insight to invest in gold instead of the wavering dollar. Something I’ve ponder the past year. I agree with the previous comments. The Chinese people are dedicated hardworking people, unlike those tie- baggers, and rightwing thieves who over the last eight years have turn the US economy upside down.

EG

November 26, 2009 | Unregistered CommenterEG

• China quietly introduces new financial system

China has stealthily introduced a new financial system based on the renminbi which is well on its way to becoming fully convertible, according to a high-level Chinese source. In addition, China is purchasing 10,000 tons of gold to back up a new fund designed to develop and market heretofore forbidden and suppressed technologies. The fund will be based outside of China and will be controlled by prominent members of the Chinese overseas community. The gold purchase will take some time because of the logistics of transporting it and the Chinese wish to test it thoroughly. Both the Chinese government and MI6 now confirm reports that much of the gold sold by the Federal Reserve Board over the past decade is in fact gold plated tungsten.

For its part, the renminbi is now convertible with South American currencies, the rouble, Middle-Eastern currencies, the yen, South East Asian currencies and African currencies. “We will slowly introduce our new financial system in parallel with the old one and hope that people steadily migrate towards it,” the Chinese official says.

Meanwhile, the latest G20 meeting ended in acrimony and chaos. The leadership of the West is in total disarray and will remain so until the Federal Reserve Board’s bankruptcy becomes visible even to brainwashed section of the Western public. This is now expected by January or February. Both MI6 and a senior Chinese government source now predict the collapse of the Federal Reserve dollar by that time.

• Multiple, reliable sources including MI6 and the Chinese government now confirm that the Federal Reserve Board and the Bank of England were using gold-plated tungsten to “back up” their massive selling of gold futures. As the contracts came due for the delivery, the scam was unveiled.

This means that as long as the US remains under the control of fascist gangsters, it will be treated as a pariah state. Unless the Federal Reserve Board control of the United States ends, the United States is expected to be cut off from the international trading system in January. Sources both within the N.W.O. and MI6 and in China say the dollar will fall to under 6 cents by that time.

* In the meantime the Federal Reserve crime syndicate and the Bank of England are trying to prolong their lives by lying once again about the gold coated tungsten bars shipped to the Chinese (we have now been able to confirm with high level Chinese sources the tungsten was sent to China) and elsewhere. The story is now “those tungsten bars were just for security and the real gold is located somewhere else; don’t worry, we will get it for you soon.” Now the Feds are scouring the earth trying to locate people who are dumb enough to trade gold for their toxic financial waste. The owner’s of the world’s gold are determined not to give them even an ounce. They have been receiving desperate calls from the World Bank, the IMF and many central banks but none of them will get gold, the gold owners say. So, meetings due on January 6th and January 29th about settling gold futures contracts may well trigger the bankruptcy of the Federal Reserve Board and the Bank of England.

More at: http://benjaminfulford.typepad.com/benjaminfulford/

November 29, 2009 | Unregistered CommenterMark V

wow what an article i laughed hard!!! at “those tungsten bars were just for security and the real gold is located somewhere else; don’t worry, we will get it for you soon.”
Very funny brilliant article........ does anyone think there will be another pull back before the push up again. Bye the way Dominic Frisby thinks the doller index is on the rise again.

Regards,

Matthew.

December 1, 2009 | Unregistered CommenterMatthew

yes, funny ...however ...why has the fed not been audited ?...or ft. knox ?...itemized list of where the ''tarp' money went to ...transparancy my butt !

December 2, 2009 | Unregistered Commenterbonbon

About gold price and inflation (9/16/09)

I have been blocked to post until today. It is nearly three months. I could post recently with the message because I go to the public library for their computer service.

Gold will go $1,500 to $2,000/ounce in recent days

I think the Feds is preparing another financial tsunami in the rest days of this year. In which US dollars will rapidly devalued to a historical low. The price of the gold will go $1,500 to $2,000/ounce. The exchange rate of the Japanese yen will go 80/dollar or higher. The Euro will go 1.6 dollar/Euro or higher.

This is why there is regime change in Japan. The Liberal party was too close to its enterprises and big business. It resists to increase the value of yen to the desire of the Feds. So it has to step down. The Democrat party who is willingly to sacrifice the Japanese financial interest now gets the power. The high value of Japanese yen will certainly hurt Japan's economy.

China and India co-operate with the Feds. They have bought the gold quietly for sometime and will make a good profit in coming gold rush.

It will happen in coming days of this year. What a tsunami it is if it all takes place in three months. I predict it before the media bang the drum on inflation. And remember what I said today and how the Feds control your mind with propaganda.

When I say the Feds is the hand to push up the gold price, the Feds here means intelligence (FBI, DEA). So they have their own way to clear the uphill road for the gold.

Here is a whole page advertisement in San Jose Mercury News on August 24, 2009:

Cash for Gold comes to Cupertino

With unemployment and foreclosures at a record high in California, ARC Capital Investments will host another fun, safe and lucrative cash for gold purchasing event here in Cupertino to help stimulate the economy. Many people are already very aware of the benefits of such an event due to the many advertisements on television, radio and the Internet.

ARC Capital Investments, a California state-licensed precious metals dealer, has a different approach to the demand and supply of precious metals. Owner of ARC, hosts a 4-day event in the Cypress Hotel, a very well established and reputable hotel, in order to ensure 100% client interaction.
.......

The Gold Evaluation Process
........ "

The price of the gold in August was around $950/ounce. ARC of course is not a charitable institution. When it pays huge to rent hotels and put advertisement to collect gold from area to area, how much do you think they expect to make in future gold market?

When media repeats on foreclosure and unemployment news, it squeezes people to sell gold and jewellry to speculators. The next financial balloon will be a gold bubble. At that time, the topic in media will be inflation. It will advise you to buy back gold. This is how the inside group controls this country and make money from each crisis.

December 4, 2009 | Unregistered CommenterKat Hak Sung

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