Posted on 09/03/2009 11:32:37 PM PDT by FromLori
People in North America and Europe are used to seeing plenty of advertisements for gold and silver – from opportunists urging people to get rid of their “useless” gold and silver for cash! Clearly this is a bullish indicator for the market, as these companies wouldn't be spending large amounts of advertising dollars to hype “scrap” sales, and then even more money buying the metals if they didn't see the opportunity for big profits.
It turns out that there is also “advertising” for gold and silver in China, too. The big difference here is that it is China's government which is advertising the “opportunities” in gold and silver and it is urging the Chinese people to buy gold and silver.
An article from mining web-site, Mineweb quotes a program which appears on China's largest (state-owned) television company, promoting bullion-buying in general, but stressing that silver is currently the best value for investors (no surprise to regular readers):
China has introduced its first ever investment opportunity for silver bullion. The bars are available in 500g, 1kg, 2kg and 5kg with a purity of 99.9%. Figures show that gold was fifty times more expensive in 2007 but now that figure has reached over seventy times. Analysts say that silver has been undervalued in recent years. They add that the metal is the right investment for individual investors and could be a good way to cash in.
It is only in the last three years that the Chinese government significantly relaxed the rules for precious metals buying for its citizens. Given that the Chinese people (like most of Asia) already had a greater appetite for gold and silver than people in most Western nations, the explicit urging by the government itself for people to load up on bullion clearly implies the expectation of a strong future for precious metals. With a population greater than 20% of the world's total and an abundance of savings, this could easily become a self-fulfilling prophecy – especially given the tiny size of the precious metals market, relative to many other commodities.
It is also clear that China is literally “putting its money where its mouth is.” China has devoted an enormous amount of resources building up its domestic gold mining industry, soaring to #1 in the world this decade, and it recently stunned the world with the announcement of a huge increase in its official, national holdings (see “China now has 5th largest gold reserves”).
China's gold reserves jumped by 76% from its last announcement in 2002 – up to 1,054 tons. Given that official government purchases on the open market are recorded and announced, this means that rather than buying all that gold openly on the market (which would have driven up the price while they were buying) China has been accumulating gold surreptitiously, through buying up its domestic production – strongly suggesting that ramping-up its gold production was part of a long-term strategic plan to become one of the world's largest (if not the largest) holder of gold among governments.
As I have written previously, there appears to be two, related goals in this strategy. Most-obviously, the Chinese government is now spending its U.S. dollar-holdings faster than it is accumulating them. This is no surprise, given the increasing rhetoric (and increasing intensity) expressing concern about the reckless fiscal policies of the U.S. government – and its worries over the future value of its vast accumulation of U.S. dollar-based debt.
The second goal which the Chinese government appears to be moving toward is having its own currency, the renminbi, replace the U.S. dollar as the global reserve currency. There have simply been too many actions on this front to list them all, however some of the more significant initiatives are bilateral trade agreements (which exclude the use of the U.S. dollar), currency swaps with its trading partner (which substitute the renminbi in bilateral trade), and authorizing its principal, coastal exporting cities to begin conducting most or all of their trade using renminbi.
These initiatives are entirely separate from the buying-spree the Chinese government has been engaging in, dumping U.S. dollars for a vast assortment of “hard assets” - primarily commodities and commodity-producers.
As I wrote a week ago, in “Gold Wars, Part II: The Empire Strikes Back”, both the move by China to replace the U.S. dollar and its big push to accumulate large gold reserves are clearly an economic threat to the United States. It is only the reserve currency status of the U.S. dollar which has kept its value grossly inflated relative to its actual worth and kept U.S. borrowing costs artificially low.
A plunge by the U.S. dollar to its real value (somewhere not far above zero) would unleash crippling inflation in the U.S. (if not actual hyperinflation), while a rise in borrowing costs would strangle its crippled economy. Given that suppressing the price of gold has been a principle strategy by Western bankers to keep the dollar artificially propped up, China's zeal for gold (and silver) is also strongly against U.S. interests.
Whether the official urging by the Chinese government for its citizens to buy precious metals is merely prudent, “fatherly” advise to its citizens, or part of a somewhat more sinister campaign the result will be the same: soaring precious metals prices indefinitely into the future.
With gold and silver having just broken-out above their summer trading ranges (the weakest season of the year for the precious metals market), precious metals appear poised for spectacular runs this fall, as I suggested a month ago (see “Two short-term scenarios for Gold Market”). Those who have continued waiting for cheaper prices have been shut out of this market (notably the price-conscious buyers in India), and the window for buying at current, bargain prices appears to be closing quickly.
There are plenty of enterprises pushing gold and silver ownership for US investors as well. Lots of scrap miners, too. Hey that is capitalism. So buy or sell, as you wish.
I urge freepers to avoid whenever possible buying anything made in China.
(Since I'm kind of a coin collector, I'm always on the lookout for the latest Silver Panda coins from China, since they change the design on a yearly basis.)
I am a buy American made person myself I would rather pay a bit more and save a job here so I do whenever possible.
We started a cash for gold store in Timonium,Md. We are directly across from
Smythe but offer 66% vs Smythe’s 50%.
Seeking Alpha lost me a month or so ago when it posted a rant about H1N1 being nothing. Essay was based on nothing. Just what the writer wanted to happen.
Considering China’s bond holdings they could easily affect dollar valuation and inversely the price of gold and silver. I can’t see the logic behind telling it’s people to buy precious metals if they think the dollar will increase in value.
Bump for later read.
Talk about back to the future. China accumulated large reserves of gold and silver when trade opened up with the West until the Brits forced open the trade in opium since that was the only import the Chinese would buy. The British minted these Trade Silver Dollars, that you can collect, for the explicit purpose of using them to buy goods from China.
I believe this is not a move to shore up currency.
China and its population have also been hoarding copper and nickel as well. Consider gold and silver....I firmly believe China is positioning itself for more industrial independence than financial independence.
If the global recovery stalls, China will be positioned to satisfy its industrial needs for precious metals, even buying them (or taking them) from its citizens.
If the global recovery starts, China could dump its reserves (along with its citizens), depressing prices worldwide thereby giving China access to cheap precious metals on the open market.
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