Gold: the secret weapon in the worldwide financial war

A "full-scale financial war" is raging around the world and gold is the secret weapon, geopolitical analyst James G. Rickards tells King World News today.

Rickards says China's new gold exchange is retaliation for the refusal of the United States to restrain paper currency and help control inflation. He agrees that the exchange has the potential to explode demand for gold.

As for the proposal for Switzerland to create a "parallel" gold-backed franc, Rickards says it would create a massive case of Gresham's Law, where everyone would dump the unbacked franc for the gold-backed franc. Indeed, Rickards says, the first country that goes to a gold-backed currency will have the only currency anyone wants, the strongest currency in the world. Swiss legislators, he adds, can't possibly understand the global implications of the proposal.

Holes in the fiat currency dike are popping out all over the place, Rickards says, and in the face of the collapse of their paper currencies, governments will either have to convert their currencies to gold or resort to unprecedented coercion, outlawing gold or punitively taxing it and imposing capital controls.

As usual Rickards has thought things through far more extensively than most analysts. You can listen to his interview at the King World News Internet site HERE

Eric Sprott: Gold Tsunami

by Eric Sprott & David Franklin

Ignoring real estate, most people invest their hard earned money in paper things. Stocks, bonds, annuities, insurance - it's all paper, and it sits nicely in our bank accounts and shows up on our computer screens. Halfway across the world, investors in China and India have never trusted paper investments as a store of value - and they're converting their hard earned paper money into gold and silver bullion. Not that this is anything new. It isn't. But the scale and speed with which they are accumulating precious metals IS new, and it'€™s driving the fundamentals that we believe will lead to higher prices in 2011.

Demand for the metals is literally exploding in Asia, and it'€™s creating shortages of physical bullion around the world. The statistics are extraordinary. China, the world'€™s largest gold producer, now requires so much of the precious metal (in addition to what it already mines) that it imported over 209 metric tons (6.7 million oz) of gold during the first ten months of 2010. This represents a fivefold increase from the estimated 45 metric tons it imported in all of 2009.¹

According to the World Gold Council, Chinese retail demand for gold increased by 70% from October 2009 to September 2010, representing a total of 153.2 tonnes of gold imports. Yet, over the same period, the demand for gold jewelry rose by only 8%.² There is a clear trend developing for Chinese investment in gold as a monetary asset, and China is buying so much gold for investment purposes that it now threatens to supercede India as the world'€™s largest gold consumer. Chinese demand in 2010 is expected to reach approximately 600 tonnes, just behind India'€™s 800 tonnes.³ To put that in perspective, 2010 world mine production is forecasted to be 2,652 tonnes, which means China and India could collectively lock-up over half of global annual production.

Even more surprising is the increase in Chinese demand for silver. Recent statistics show that silver imports have increased fourfold from 2009 to 2010. In 2005, the Chinese exported just over 100 million oz. of silver.⁴ In 2010, they imported just over 120 million oz. This represents a swing of 200 million+ oz. in a market that supplied a total of 889 million oz. in 2009 - a truly tectonic shift in demand!⁵

We are seeing widespread evidence of major shortages of physical gold and silver bullion across the globe. The Perth Mint recently stated that: "Demand for our coins and medallions is strong, but the biggest demand is coming from banks and traders looking for kilo bars."⁶ Three weeks ahead of Chinese New Year, Asian dealers were reporting premiums in mainland Chinese gold exchanges of $23 per ounce.⁷ Even Jim Cramer has acknowledged the current shortage in minted US gold coins, stating on his CNBC television show in December that: "As someone who tried to buy U.S. coins in December, there was a real scarcity. My dealer reportedly just couldn'€™t get any coins - tried to sell me Australian bullion. Said there was a shortage. Very telling."⁸

While Chinese New Year celebrations typically drive gold demand in the month of January, there are stronger forces at work here. The Chinese are fighting the resurgence of inflation. To protect their wealth, the populace is turning to gold and silver as a store of value. Precious metals ownership is a relatively new phenomenon in China, where Chinese citizens have only been able to purchase gold freely within the last ten years. Ownership restrictions were lifted in 2001 when the Chinese central bank abolished its long-term government monopoly over gold. The Shanghai Gold Exchange was then created in October 2002 to replace the People's Bank of China'€™s gold purchase and allocation system, thus ushering in a new era of gold investment in China.⁹ Investor interest in precious metals has increased dramatically since then, and new investment products are making gold more convenient to purchase and easier to own.

One such program recently caught our eye and speaks to the new era of gold investment within China. On April 1, 2010, the World Gold Council and Industrial and Commercial Bank of China (ICBC) issued a press release announcing a strategic partnership.¹⁰ Though seemingly innocuous, this press release introduced a completely new investment product for Chinese investors: The ICBC Gold Accumulation Plan ("ICBC GAP"). ICBC GAP allows investors in mainland China to accumulate gold through a daily dollar averaging program. The minimum investment required is either 200 RMB per month or 1 gram of gold per day (equivalent to approximately US$42).¹¹ Customers may renew the contracts at maturity, convert them into cash or exchange them for physical gold. The accounts are perfect for investors who want to accumulate gold over the long-term. While gold accumulation plans exist in Japan, Switzerland and other countries, this is a first for mainland China. Kudos to the World Gold Council for their efforts in setting up and promoting the program.

The most significant fact related to the ICBC GAP program is how fast it has captured the investing public in China. One million accounts have already been opened since the program launched on April 1st, resulting in the purchase of over 10 tonnes of gold thus far. According to press releases, the ICBC GAP plan was taken up by a mere 20% of total depositors at ICBC, and was only launched in select Chinese cities during the test phase. The ICBC bank just happens to be the largest consumer bank on earth with approximately 212 million separate accounts. If we apply some realistic assumptions and arithmetic, it'€™s easy to imagine how large this program could potentially become.

Suppose, for example, the ICBC GAP plan were expanded to cover all ICBC depositors, and also expanded to the next four largest Chinese banks. Let's further assume that the gold purchases within the plan enjoyed the same rate of growth as the test phase mentioned above. If we add all these numbers together, it results in gold purchases of an extra 300 tonnes of gold per year, or over 10% of the estimated 2010 global gold production.

The implications of this burgeoning Chinese demand for the gold market are immense. If these predictions prove accurate, the ICBC GAP plan could become the single largest buyer of physical gold on the planet. Considering that the program has only been launched in one Chinese bank thus far, imagine if it were extended to other institutions or other large gold consuming countries such as India, Russia or Turkey?

Speaking from Japan, the head of the World Gold Council recently commented on the early success of the ICBC GAP plan in China: "Here in Japan, it has taken over 10 years for the gold-savings account industry as a whole to reach 700,000 accounts. It is impressive that only one Chinese bank can exceed that level so easily, within one year, without PR or active marketing in-branch." The World Gold Council does their own arithmetic on how much gold the Chinese can consume: "In 2009, per capita gold consumption in China was 0.33 grams, up from 0.17 grams in 2002." Based on this data total Chinese gold consumption could range from 1,000 tonnes per year or more.¹² This implies that the Chinese could consume almost half of the gold produced globally on an annual basis.

The ICBC Gold Accumulation Plan and other alternate methods of investing in gold have the potential to overwhelm current supply in the gold market. If a similar program were launched for silver accumulation, in the same dollar terms at current prices, it would consume over half of the silver produced each year! In Asia, only physical gold and silver will do and unlike the supply of treasury bills, bonds or paper currencies, the supply of physical gold and silver is undoubtedly finite.

We believe Asian demand for physical gold and silver is akin to a tsunami. While precious metals prices have corrected on the paper exchanges, the inflation resurgence in Asia is quietly driving new, unforeseen levels of physical demand for the metals. While the world continues to float on a sea of paper, this massive wave of physical demand silently threatens to crash into the physical gold and silver market, potentially wiping out tangible supply.

_______________________________

1. Hook, Leslie. (December 2, 2010) China'€™s gold imports surge fivefold. Financial Times. Retrieved on January 31, 2011 from:

http://www.gold.org/download/rs_archive/WOR5797_Gold_Invest_Report_China_Web.pdf

2. D'Altorio (December 30, 2010) China'€™s Gold Rush. Investment U. Retrieved on January 31, 2011 from:

http://www.investmentu.com/2010/December/chinas-gold-rush.html

3. Pearson, Madelene. (January 12, 2011) Gold Imports by India Likely Reached Record, WGC Says. Bloomberg Businessweek. Retrieved on January 31, 2011 from:

http://www.businessweek.com/news/2011-01-12/gold-imports-by-india-likely-reached-record-wgc-says.html

4. (December 2, 2010) Gold Imports by China Soar Almost Fivefold as Inflation Spurs Investment. Bloomberg. Retrieved on January 31, 2011 from:

http://www.bloomberg.com/news/2010-12-02/china-gold-imports-jump-almost-fivefold-as-inflation-outlook-spurs-demand.html

5. The Silver Institute. Demand and Supply in 2009. Retrieved on January 31, 2011 from:

http://www.silverinstitute.org/supply_demand.php

6. Campbell, James (January 12, 2011) Unrelenting demand for gold below $1400 - Perth Mint. Retrieved on January 30, 2011 from:

http://www.mineweb.com/mineweb/view/mineweb/en/page103855?oid=118307&sn=Detail&pid=102055

7. Ash, Adrian (January 12, 2011) Shanghai Gold Premium Hits $23/Oz, China Opens 1 Million Gold-Savings Accounts. London Gold Market Report. Retrieved on January 31, 2011 from: http://www.resourceintelligence.net/shanghai-gold-premium-hits-23oz-china-opens-1-million-gold-savings-accounts/14715

8. CNBC: Buy this pause in gold'€™s bull run, "Mad Money" host Jim Cramer advises. Retrieved on January 31, 2011 from:

http://www.blanchardonline.com/investing-news-blog/econ.php?article=1697&title=CNBC:_Buy_this_pause_in_gold%27s_bull_run%2C_%22Mad_Money%22_host_Jim_Cramer_advises

9. China Gold Report: Gold in the Year of the Tiger. The World Gold Council (March 29, 2010). Retrieved on January 31, 2011 from: http://www.gold.org/download/rs_archive/WOR5797_Gold_Invest_Report_China_Web.pdf

10. World Gold Council (April 1, 2010) World Gold Council and ICBC Enter into Strategic Partnership to Promote China'€™s Gold Market. Retrieved on January 31, 2011 from: http://www.gold.org/download/pr_archive/pdf/ICBC_MOU_010410_pr.pdf

11. World Gold Council. (December 16, 2010) World Gold Council and ICBC launch first gold accumulation plan in China. Retrieved on January 31, 2011 from: 
http://www.gold.org/download/pr_archive/pdf/2010-12-16_ICBC_GAP_release.pdf

12. Ash, Adrian (January 31, 2011) Gold Shorts Beware China'€™s Million-Strong Gold Savers. Forbes. Retrieved on January 2011 from: 
http://blogs.forbes.com/greatspeculations/2011/01/13/gold-shorts-beware-chinas-million-strong-gold-savers/

Egon von Greyerz: Gold is now uderwritten by China

"..There is really only one government in the world that understands the virtues of gold – China. Not only is the country buying all the gold that they can without pushing the price up but they are also encouraging the Chinese people via the media to buy gold and silver."

Egon von Greyerz, Matterhorn Asset Management

Please click HERE to read this commentary.

A Chinese message to US...

The Chinese Prime Minister's body language while addressing a message to US requesting assurances for the safety of the country's vast US$ holdings, is so "loud 'n clear" it leaves no room for misunderstandings....

China may add 4,000 tons of gold...

From Dow Jones Newswires
via FXStreet.com
Wednesday, November 19, 2008


BEIJING -- China's central bank is considering raising its gold reserve by 4,000 metric tons from 600 tons to diversify risks brought by the country's huge foreign exchange reserves, the Guangzhou Daily reported, citing unnamed industry people in Hong Kong.

The newspaper didn't elaborate on the plan.

China's forex reserves, at $1.9056 trillion at the end of September, are the world's largest. U.S. dollar-denominated assets, including U.S. treasury bonds and mortgage agency bonds, account for a big proportion of the forex reserves.

* * *

China urged to buy gold to hedge dollar decline

By Xiao Yu and Ron Harui
Bloomberg News
Friday, November 14, 2008

China, the second-biggest overseas holder of U.S. Treasuries, should increase its bullion holding to diversify its reserves because the dollar may decline, the country's gold association said.

"China should have at least several thousand tons of gold in its reserves, five to six times the officially announced 600 tons," Hou Huimin, vice chairman of the China Gold Association said by phone from Beijing. The group represents producers, traders, and retailers.

The U.S. budget deficit climbed to a record in October, and some investors are betting the dollar may weaken as the Treasury would need to sell more debt to finance its $700 billion financial-rescue package. Gold has tumbled 29 percent from its March record.

"There's no doubt that gold would be attractive, as U.S. debt is likely to swell," said Kenichiro Ikezawa, who oversees about $3 billion as a fund manager at Daiwa SB Investments Ltd. in Tokyo. "In the long term, both the dollar and Treasuries will probably weaken. It's possible that China will buy more gold, though the country is likely to do so gradually."

The dollar dropped 0.5 percent against a basket of six major currencies at 3:25 p.m. Beijing time. Gold declined 0.8 percent to $730.54 an ounce.

China has the world's biggest foreign-exchange reserves at $1.9 trillion, according to data compiled by Bloomberg. It is also the largest overseas holder of Treasuries after Japan. China's demand for gold jumped 23 percent in 2007, making it the world's second-largest consumer.

The Asian nation may buy more gold for its reserves on concern the $700 billion U.S. bank bailout will cause declines in the dollar and Treasuries, the Standard newspaper in Hong Kong reported today, citing an unidentified person.

The People's Bank of China spokesman in Beijing declined to comment on the newspaper report.

Zijin Mining Group Co., China's largest gold producer, and rivals Shandong Gold Mining Co. and Zhongjin Gold Corp. jumped by their daily limit of 10 percent in Shanghai trading.

Zijin rose to 3.87 yuan at the 3 p.m. close, the highest in a month. Shandong Gold gained to 38.13 yuan, and Zhongjin Gold climbed to 29.34 yuan.

"Chinese gold stocks are probably rising on the speculation that China may buy more bullion," said Wayne Fung, a Hong Kong-based analyst at China Everbright Securities Ltd. "It won't surprise me if China goes ahead, as it's not the first time the rumor has emerged in the market."

Some Asian central banks may seek to build up gold holdings a little as the percentage in their reserves is rather low, said Dominic Schnider, commodities analyst at UBS Wealth Management Research. "But I don't think they will go into the market and destroy the balance and push it to ridiculous prices," he said.

Gold more than doubled in the past six years and reached a record $1,032.70 an ounce March 17 as the dollar slumped and oil advanced, increasing concern inflation would accelerate. In the past eight months, the precious metal has plunged about 30 percent as the dollar rallied, oil collapsed and the global credit crisis pushed the world toward a recession.

The U.S. dollar index advanced to a 30-month high yesterday.

"The dollar has gone up and gold come down, so if you want to diversify it's a decent time to do so," Larry Kantor, head of research at Barclays Capital, said in Singapore. If countries want to shift into gold from currencies, "they will do it over a very long period."

The U.S. budget deficit climbed to an all-time high of $237.2 billion in October, spurred by the purchase of stakes in some of the nation's largest banks, according to Treasury Department data released yesterday in Washington.

The Treasury this month said it will more than triple its planned debt sales this quarter to help finance this year's budget shortfall. The government needs to raise money not only for the package, but also to pay for its bailouts of mortgage companies Fannie Mae and Freddie Mac.

* * *

China reported planning big shift of FX reserves into gold

By Benjamin Scent
The Standard, Hong Kong
Friday, November 14, 2008

The mainland is seriously considering a plan to diversify more of its massive foreign-exchange reserves into gold, a person familiar with the situation told The Standard.

Beijing is considering changing its asset allocations during the financial tsunami in order to build up gold reserves "in a big way," the source said.

China's fears about the long-term viability of parking most of its reserves in US government bonds were triggered by Treasury Secretary Henry Paulson's US$700 billion (HK$5.46 trillion) bailout plan, which may make the US budget deficit balloon to well over US$1 trillion this fiscal year.

The US government will fund the bailout by printing new money or issuing huge amounts of new debt, either of which will put severe pressure on the value of the greenback and on government bond yields.

The United States holds 8,133.5 tonnes of gold reserves valued at US$188.23 billion. China holds gold reserves of just 600 tonnes, worth only US$13.89 billion.

Beijing's reserves could easily go up to 3,000 to 4,000 tonnes, Tanrich Futures senior vice president Colleen Chow Yin-shan said.

Until now the United States has had little choice but to issue massive amounts of debt to fund its deficits, and China has had little choice but to purchase it, as there are not many markets deep enough to absorb the mainland's US$30 billion to US$40 billion in monthly capital inflows.

Government officials involved in the management of China's reserves are beginning to see gold as an attractive place to park some of these funds. They see it as a real, tangible asset that will not lose its value over time -- in stark contrast to the greenback, which is becoming more disconnected from economic realities as more bills are printed.

"It's the right time to increase the gold reserves, as the price is about US$710 to US$720 per ounce," said Wan Guoli, vice secretary general of the China Gold Association.

The International Monetary Fund has made reducing global payment imbalances one of its priorities in the aftermath of the financial tsunami.

"I think China probably will expand its strategic reserves into commodities during this downturn," said a Hong Kong-based strategist.

"China will continue to buy treasuries ... otherwise the system would get distorted," he said. "But I think China will diversify its reserves."

* * *

Huffington Post: Seven Predictions for US economy

1) The price of gold and the Dow Jones will reach parity between 4,000 and 5,000 (i.e., gold will trade between $4 - 5,000 as does the Dow Jones Industrial Average).

2) America's sovereignty, as defined as percentage ownership of American financial assets, principally U.S. government bonds (soon to no longer be rated AAA), will be mostly in the hands of foreigners.

3) China will buy Fannie Mae and Freddie Mac and in so doing become America's biggest land lord.

4) Very few of the current Bush administration, family, and close associates will be living inside U.S. borders within 6 months after leaving office.

5) The Presidential election in November will be delayed due to a global financial crisis.

6) The U.S. military in Iraq and Afghanistan will start to run out of money and be left to get out on their own resulting in American mercenaries hiring groups like the Taliban to escort them out of the region, with Bin Laden getting a commission on each deal.

7) Russia will emerge as the new power broker in a post-America world restoring financial order between America, the largest debtor in the world and China, the largest creditor in the world.

...to read the entire mind-boggling, must read article titled "The Black-Scholes Atomic Debt Bomb & 7 Predictions" please click HERE

China Daily: HSBC debuts in gold

There are more than U.S.$1,700,000,000,000 (read 1.7 trillion) sloshing about in China's FX reserves looking for a quiet and decent way out before their true value returns to mean, which is the value of some coloured ink over fancy paper, i.e. ZERO!

Having said that we can now read the following China Daily's newsitem without the distracting "static" noises and in correct perpective...

HSBC debuts in gold

China Daily
2008-06-06 03:22:06 GMT 2008-06-06 11:22:06 (Beijing Time)


In what is being widely seen as a major step toward globalizing China's gold market, HSBC yesterday became the first overseas bank to start trading gold on Shanghai Gold Exchange (SGE) after gaining approval from China's banking regulator.

Tong Gang, the press officer of Shanghai Gold Exchange, told China Daily: "The transaction volume traded by HSBC today (Thursday) on SGE amounted to 17 kilogram of gold in purity Au9995."

"It is an exciting policy to allow overseas banks access to China's gold market," said Tong. "A closer tie between China's gold market and the global market is expected to be established."

Along with HSBC, Standard Chartered Bank and Canada's Scotiabank were also given SGE memberships earlier this year.

Industry experts said the opening of Shanghai's gold market to overseas banks is widely considered a major effort to help increase the liquidity of the domestic gold market and bring in the foreign expertise that can promote the development of the market in the longer term.

Richard Yorke, group general manager, president and CEO of HSBC China, said: "The opening of the gold market to overseas banks is another exciting development for China's financial market."

"HSBC China is pleased to remain at the forefront of the new market developments. Our trading at the exchange will enable us to share our international experience and expand our participation in China's financial markets as well as our service scope," Yorke added.

The Double Whammy of Geopolitical Gold Games

The Double Whammy of Geopolitical Gold Games

Antal E. Fekete
Gold Standard University
aefekete@hotmail.com


Even the most rabid silver bugs admit the possibility that the Chinese are the Big Silver Shorts. This suggests that the Big Gold Shorts are also governments. Neither are naked by any stretch of the imagination. The double whammy of gold and silver accumulation by unnamed governments is the big puzzle of the present financial crisis in the world as it holds the key to the resolution.

For a better understanding of the Chinese silver picture you have to know a little background of the role of silver in China. The facts are as follows. China has been on a silver standard since time immemorial. China stayed on the silver standard after other trading nations of the world demonetized silver and embraced the gold standard at the end of the 19th century. China's external trade was insignificant, but the volume of silver currency for domestic use must have been enormous. In addition, there was an avalanche of silver from abroad raining on China. As the silver price fell over 75 percent from $1.29 in 1873 to $0.25 by 1932 (with a brief spike back to $1.29 at the end of World War I), other governments were dumping silver on China mercilessly. China was the only country on the silver standard and the Chinese central bank had to take all the silver offered to it at a fixed price. This situation lasted right up to 1949 when the Communists took over the government. In fact, several Western historians blame the Communist victory on the unprecedented silver inflation that Western governments inflicted on the Chinese economy by their insane silver dumping policy before World War II.

Nobody knows how much silver the Chinese Communists found in bank vaults and in the safe deposit boxes of Chinese merchants who fled the country, when they took over the mainland. Nobody knows how much silver is still hidden in the mattresses of Chinese peasants. The amounts must be enormous. The best estimate is that most of that silver has never been consumed and still exists in monetary form. China's primitive economy under Mao was in no position to put that silver to industrial use. All that silver is now at the disposal of the Chinese government that could easily buy up silver coins scattered around the cities and in the countryside, at the present rising price of silver.

China is the only country in the world that has consistently run trade surpluses since 1950. As far as it is known, silver never figured in China's exports (except re-exporting foreign-owned refined silver.) Why should the Chinese export silver, when they could export almost anything else? Silver to the Chinese mind is money. You don't export money unless you are forced to cover your trade deficit, of which China has none. China has always paid for its imports with exports, a smart thing to do, too.

The Chinese are alive to the fact that escaped the silver bugs in the West, that you can derive a silver income from your pile of silver by covered short selling, even while retaining physical control of your silver hoard. THIS IS AN UNPRECEDENTED BONANZA IN THE HISTORY OF MONEY. It has never before happened that you earn interest while retaining physical control of your money. Typically you have to release control of money in order to earn interest income, that is, you have to assume risk. Lending money necessarily involves risks: the borrower may default. But if you don't give up physical control, then you will escape the monetary debacle unscathed. Because of the imbecility of the managers of the paper dollar standard there exist durable risk-free profit opportunities in holding monetary metals in the balance sheet. The trick is: covered selling. That's possible because the price of monetary metals has been allowed to fluctuate. The price fluctuation of a monetary metal, like the flow-and-ebb of the oceans, represents energy. Energy that can be harnessed. Energy that can be harnessed only by those who understand monetary economics.

The Chinese are not stupid. They looked askance at the silver and gold demonetization farce perpetrated on a gullible world by Western governments. (Gold was demonetized 100 years after silver had been, in 1973.) They are not falling for the cheap trick. They hang on to their silver. They make most of the stupidity of their adversaries. Nor are they in a hurry to push the silver price to three or four digits in order to sell their silver for a quick profit in irredeemable dollars (which is what the get-rich-quick crowd plans to do). Rather, it is in their interest to derive constant and consistent income in silver from covered writing, or using other dynamic hedging strategies. Why should they trade their silver for dollars, when they have far more dollars already than they want?

From the point of view of the Chinese, a slow rise in the silver price (and a gradual rather than an abrupt depreciation of the irredeemable paper dollar) appears more desirable than an overnight jump in the silver price to three digits that would put an end to their lucrative silver income from covered writing. They certainly have the clout to dictate the pace of silver price appreciation, and probably also of paper dollar depreciation.

The Chinese are inscrutable. They don't show you their blueprint for the new international monetary system which they plan to impose on the world after the inglorious end of the paper dollar era. It may be a born-again silver standard. The Chinese are using their cash silver and the silver income derived from covered writing as a hedge for their exposure to irredeemable paper dollars to the tune of $1.3 trillion, by far the largest accumulation of dollars the world has ever seen. What they will lose on their paper portfolio they will gain on their cash silver position. They will probably gain much more. While the finance-capital of the world denominated as it is in paper dollars is programmed to self-destruct, the Chinese will control much of the liquid capital in the world after the dollar-debacle. They will be a great source of capital exports, if you can pay their price, that is.

The Chinese can earn their way in the world. They can work when work is necessary, and they can save when saving is called for. They are doing fine, thank you very much. You need not worry about the Chinese losing their kitty of $1.3 trillion invested in U.S. T-bills and T-bonds.

However, you had better start worrying about America which is no longer in control of its economic and financial destiny. It has let world monetary leadership slip out of its hands. America's industrial capital is in shambles. From the largest creditor it turned itself into the largest debtor. The light has gone out at the great American universities as far as monetary science is concerned. Through bribe, blackmail, and attrition all upright and serious monetary economists were bumped from their academic chairs. The Great Chinese Cultural Revolution was a picnic in comparison to the Great American Cultural Revolution eliminating monetary economics from the curriculum. Courses on money presently taught consist of pure Keynesian and Friedmanite bunk.

It is a farce to blame the present financial crisis on lax lending standards and rogue traders. What we see is the return of the chickens to roost. This crisis has been in the making for over a century, involving the so-called demonetization of both monetary metals. The move was inspired and led by the United States. In particular, the so-called demonetization of gold was designed to camouflage the default of the U.S. Treasury on its gold-obligations. The industrial nations of the West did not even say 'ouch' when America's default caused them losses measured in hundreds of billions on their holdings of dollars in 1971. They became accomplices eager to start milking their own savers and producers by joining the paper-money farce. The day of reckoning dawns.

America's plight is self-inflicted. Yet America could still turn the train of monetary events to its advantage, reclaiming monetary leadership, if it opened the U.S. Mint to gold and silver. It should do it before China or Russia opened theirs. Unfortunately, there does not seem to exist one grain of wisdom in Washington to see this, let alone to do this. It would take the election victory of the maverick candidate, Dr. Ron Paul, Minority of One in the House of Representatives, to pull it off. It is certainly a proof of the American genius that great crises produce great men who are capable of dealing with them. If the Chinese beat America to the finish line by opening their Mint to silver, then the silky metal would be the international currency of the future.

Next to the Chinese the Russians are the most inscrutable players, ganging up against America's monetary hegemony. Their turf is gold. Perhaps it will be the Russians who will beat America to the finish line by opening the Russian Mint to gold, even before the Chinese open theirs to silver. Either way, America would be left in the lurch, denuded of its industrial capital, its savings, but left with a pile of worthless paper, and paper-worshippers in charge of the Treasury, and in charge of teaching monetary economics at all levels.

America can then embark on the arduous path to accumulate capital from scratch, while Russian and Chinese capitalists will be producing goods in spanking new plants, aided by spanking new equipment, complemented by shiny gold and silver pieces to trade their products world wide.

It is past wake-up call. To save itself, America had better listen to the message of Ron Paul who, in a counter double whammy, would open the U.S. Mint to both gold and silver if elected President.

GOLD STANDARD UNIVERSITY LIVE

Session Three, will be held in Dallas, Texas, February 11-17, 2008. For details, go to www.professorfekete.com.

China threatens 'nuclear option' of dollar sales

By Ambrose Evans-Pritchard
The Telegraph, London
Tuesday, August 7, 2007

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

Two officials at leading Communist Party bodies have given interviews in recent days warning -- for the first time -- that Beijing may use its $1.33 trillion (Β£658 billion) of foreign reserves as a political weapon to counter pressure from the US Congress. Shifts in Chinese policy are often announced through key think tanks and academies.

Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.

It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds more than $900 billion in a mix of US bonds.

Xia Bin, finance chief at the Development Research Centre (which has cabinet rank), kicked off what now appears to be government policy with a comment last week that Beijing's foreign reserves should be used as a "bargaining chip" in talks with the US.

"Of course China doesn't want any undesirable phenomenon in the global financial order," he added.

He Fan, an official at the Chinese Academy of Social Sciences, went even further today, letting it be known that Beijing had the power to set off a dollar collapse if it choose to do so.

"China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency. Russia, Switzerland, and several other countries have reduced their dollar holdings.

"China is unlikely to follow suit as long as the yuan's exchange rate is stable against the dollar. The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar," he told China Daily.

The threats play into the presidential electoral campaign of Hillary Clinton, who has called for restrictive legislation to prevent America being "held hostage to economic decicions being made in Beijing, Shanghai, or Tokyo".

She said foreign control over 44 percent of the US national debt had left America acutely vulnerable.

Simon Derrick, a currency strategist at the Bank of New York Mellon, said the comments were a message to the US Senate as Capitol Hill prepares legislation for the Autumn session.

"The words are alarming and unambiguous. This carries a clear political threat and could have very serious consequences at a time when the credit markets are already afraid of contagion from the subprime troubles," he said.

A bill drafted by a group of US senators and backed by the Senate Finance Committee calls for trade tariffs against Chinese goods as retaliation for alleged currency manipulation.

The yuan has appreciated 9 percent against the dollar over the last two years under a crawling peg, but it has failed to halt the rise of China's trade surplus, which reached $26.9 billion in June.

Henry Paulson, the US treasury secretary, said any such sanctions would undermine American authority and "could trigger a global cycle of protectionist legislation."

Mr Paulson is a China expert from his days as head of Goldman Sachs. He has opted for a softer form of diplomacy but appeared to win few concessions from Beijing on a unscheduled trip to China last week aimed at calming the waters.

* * *

Soon the Chinese will be buying gold with both hands...

Individual gold bullion trading to be launched in China in July

Appropriately, during China’s year of the Golden Boar, the Shanghai Gold Exchange announced that it will offer gold bullion trading for retail investors next month.
by Dorothy Kosich
Tuesday , 26 Jun 2007
mineweb.com

The Shanghai Gold Exchange is launching individual gold bullion trading next month through a partnership with China's Industrial Bank.

The Shanghai Daily reported Tuesday that the gold bourse has scheduled a joint briefing in early July with Industrial Bank about the service.

The exchange will also subsequently launch trading through Huaxia Bank. Industrial and Commercial Bank of China is likely to be the third entity to join the bullion trading scheme.

China's central bank, the People's Bank of China, gave approval for the gold bourse to start nationwide gold trading services at the end of 2006, the Shanghai Gold Exchange said Monday.

Under the new trading scheme, individual investors will be able to trade in gold from a minimum threshold of 100 grams, which would cost roughly 16,000 yuan (US$2,099). Investors can take home the bullion at lower prices than those of jewelers and coin makers. For example, investment-grade bullion fetches more than a 10% premium in the market.

The Bank of China and China Construction Bank are among the lenders that already offer virtual gold trading betting on prices through a special bank account. However, investors can't actually hold the gold bullion.

Earlier this month, the Shanghai Gold Exchange said it will work with more commercial banks to offer gold to retail investors. The Chinese have traditionally kept gold bullion as a safe haven to hedge against inflation and as a symbol of good fortune, according to the Shanghai Daily.

The Shanghai Exchange now trades gold, platinum and silver.

China is Uranium Hungry!

China shops for foreign uranium properties as possible domestic shortage looms

The possibility of domestic uranium shortages has the China National Nuclear Corp., the nation’s largest nuclear power plant builder, in discussions with numerous foreign uranium explorationists.
Author: Dorothy Kosich
Posted: Monday , 21 May 2007

RENO, NV -

China's largest nuclear power plant builder said it is in discussions with companies in Australia, Kazakhstan and Mongolia because of a potential domestic uranium shortage.

The Wall Street Journal reported Sunday that London-based UraMin (AIM, TSX: UMN) has been negotiating with China National Nuclear Corp. (CNNC). Lui Xuehong, Vice President of the CNNC's overseas uranium exploration unit, told the Power & Alternative Energy Summit that discussions are also ongoing with companies in Canada, Niger and Algeria.

Liu specifically referred to UraMin's "good assets in Africa," which include acquired or pending mineral rights in Namibia, South Africa, Mozambique, Botswana, Chad and the Central African Republic.

"We will participate in overseas exploration of uranium by buying mining rights of deposits or taking a stake in a particular project," Liu told the conference.

Shanghai Daily reported that China needs to add two reactors a year to meet its target of generating 4% of its power from nuclear plants by 2020. China National Nuclear plans to spend US$52 billion to build domestic reactors by 2020.

Lemming week! Markets, gold and silver plunge

Lemming week! Markets, gold and silver plunge
Lawrence Williams
'04-MAR-07 01:00'

TORONTO (Mineweb.com) --Jittery markets for precious metals and stocks in general saw huge sell-offs following an 8 percent plus fall in the Shanghai Stock market Tuesday. Together with other data, this precipitated one of the biggest sell-offs seen in recent years with firstly Wall Street and London droppinging dramatically, followed by a big dip in gold and silver prices on Friday, just as the world’s major stock markets appeared to be stabilising.

Was there any logic behind the falls? Not really but maybe! The Shanghai market, which had been rising at an unsustainable rate, was almost certainly due a correction. But whether Western markets should logically have followed it down is definitely debatable. Whether gold and silver should have followed suit is even harder to understand.

The nervousness which affected the markets seemed to be because of the apparent dependence of the markets on the health or otherwise of the Chinese economy these days. The Chinese fall was seen, not as a correction, but perhaps as an indicator that there was something deep rootedly insecure about the state of the Chinese marketplace.

Yet market indicators in China suggest nothing of the sort! There seems to be no fundamental change in the state of the Chinese economy at all and its rise in consumerism and metals demand seems unaltered. Perhaps the big Chinese fall was just a correction brought on by profit taking after all, with spooked Western markets just following it down. Technicalities mean that when markets fall, stop-loss sales can be triggered automatically and these falls are exacerbated, triggering more stop-loss sales. Dealers follow the market down like lemmings over a cliff-edge (although apparently there is no truth in that particular old wives tale.)

Some analysts feel that the gold price sell-off at the end of the week was due to investors who had gold as part of their portfolio, needing to sell to cover their positions in the stock market in general. Silver just followed the gold price down.

Interestingly, base metal prices, which should have been most affected if there was a real Chinese downturn ahead, were largely unmoved by the general declines, although the same could not be said for base metals stocks. There were some falls on Friday, but on nothing like the same scale of the gold and silver price declines. Of course there could be some delayed reaction in base metal prices this coming week.

So does this signify a buying opportunity. Logic says yes. The Chinese market had already regained some of its losses by the end of the week, although Western markets have so far failed to follow suit to any significant extent. There are few fundamental reasons for the market falls, let alone for the falls in gold, silver and base metal mining stocks. Even the superheated Chinese market only lost a couple of months of gains. These things need to be put in perspective.

I would personally expect markets and metals prices to recover rather rapidly – the only problem being that if the market is that easily spooked then similar large corrections could happen at any time. But these may all be buying opportunities for those who have missed the earlier runups – particularly for those base metals mining stocks which fall back. Until fundamentals change, markets should keep moving up overall. The key is to spot a true change in pattern occurring before the bear-oriented lemmings take control again.

China Alert...come true!

Forewarned is Forearmed

Only last week we drew readers' attention to the technical aspects of the parabolic rise in the Shanghai Index.
Today the Shanghai Index semi-crashed by 8.8%

Here's some relevant news items:

• China stocks sink 8.8 pct on crackdown fears Reuters - Tue Feb 27, 7:25 AM ET

  SHANGHAI (Reuters) - Chinese stocks plunged nearly 9 percent on Tuesday, erasing about $140 billion of value in their biggest fall for a decade, amid fears that authorities would crack down on speculation that drove shares to record highs.

• Stocks plunge after big decline in China AP -

  NEW YORK - Wall Street fell sharply Tuesday, joining a global stock decline sparked by growing concerns that the U.S. and Chinese economies are cooling and that U.S. stocks are about to embark on a major correction. The Dow Jones industrials dropped more than 180 points.

• Stocks sink on China, economic concerns Reuters - Tue Feb 27, 10:01 AM ET

  NEW YORK (Reuters) - Stocks tumbled on Tuesday after a weaker-than-expected economic report and a sharp fall in China's main stock index unnerved investors after two consecutive days of Wall Street losses.

Richard Russell: "..gold, the metal, is timeless money"

R. Russell's market wisdom on gold, silver and mine shares:

"..You don't have to be a genius in order to read the chart below. This is GLD, the Exchange Traded Fund which serves as a proxy for gold. The breakout came this month when GLD filled the 65 box. Since then, GLD has rallied to the 67 box (670 in gold), and this gives us an upside gold "count" to 820.


Of course, the next real test is for GLD to reach the 72 box -- and then to surpass it. I believe that's going to happen. How it will happen and when -- ah, I wish I could tell you. But I can tell you this -- the great gold bull market is intact and right on course.

The next chart is SLV, the Exchange Traded Fund and a proxy for silver. Yesterday SLV filled the 142 box, signaling a bullish breakout. The count for SLV is now 184, which would take silver over 18 dollars an ounce. The immediate upside target for SLV is the 152 box. I think that high will be surpassed this year, possibly early this year. But hey, what's the hurry? It's a bull market, and it will progress at its own pace and in its own time.



Next, we have GDX which is the Exchange Traded Fund for the gold mines. This is an intelligent and easy way to be invested in assorted gold mines. GDX includes a good assortment of the best mines plus a number of smaller speculative mines. We're still waiting for an upside breakout in GDX, and this would entail GDX rising to 43. The mining shares at this time are lagging the metal, but as I've said so many times, the mines and the metals alternate in leadership.

However, it's important to remember this -- gold, the metal, is timeless money, it's the obvious base of the precious metals universe. The mines are always speculations, they have the leverage, but they also may have the problems. My personal preference would be to own two-thirds metals to one-third mine shares. Others may differ, but subscribers know me -- I'm conservative and I always have risk in mind. A gold coin in the hand represents pure intrinsic wealth in any nation at any time in history. A hundred shares of a gold mine is a speculation and the hope of a profit in the period ahead.

I occasionally mention the Commercials in relation to gold. I consider the gold Commercials to be basically the gold mines themselves and perhaps the gold banks, those few banks that make a market in gold. The gold mines often sell forward gold, thereby locking in the current price. In doing so, they are also short gold. Occasionally, for instance, now, the Commercials will assume a large short position in gold. If gold rises, the mines lose on their short positions, but they can then either wait for a correction, at which time they can cover. Or, if need be, they can cover their short positions by supplying the actual gold which they mine.

But once in a great while, the Commercials get caught. They have assumed a large short position, and the metal goes against them. They don't get the decline they need -- and instead the metal powers higher. It's possible that this is one of those times. Yesterday's 23 dollar surge in the face of the current large Commercial short position had me thinking that way. If, indeed, the Commercials are caught here, we should see a concerted surge to the upside with very little "give" on the downside. Remember, trading is thin in the after market, and this is the time when the Commercials will try to knock the price of gold down, as they seek to present a picture of weakness in gold.

I want to emphasize the part that China and India and probably various Arab states could now be playing in the gold picture. Unlike US citizens, the three just mentioned are well versed in the value and the power of gold. The Chinese, Indians and Arabs understand that gold is real money, that it represents wealth that cannot be destroyed by governments or central banks. Thus, I believe that our overseas friends will be playing an increasingly large part in the gold picture.

In both ancient and modern history, gold has always flowed towards the strongest nations. Financial and even military strength has always acted as a magnet for gold. Thus, it will be most important to watch the flow of gold towards nations in the years ahead. Interestingly, the nations mentioned are all actively encouraging their citizens to accumulate gold. This is particularly true, I believe, in the case of China.

By the way, over the last five years gold has outperformed the S&P. In case you missed it, this rundown below shows gold's progress in various currencies. In dollars, gold is up 6 % so far this year (chart borrowed from John Mauldin's recent article.)

..."

China Alert!

The Shanghai Index has been in a "parabolic rise" since late last year, moving much higher and faster than the Internet bubble of the late 90ies:



It's no rocket science figuring out the exponential rise. The Index went up 1060 points or 20.97% in 9 days, protracting the already ominous parabola.

Extreme caution is advised to all those involved!

Miners ask UN to stop China excluding them from Africa

Miners ask UN to stop China excluding them from Africa

The Times January 29, 2007 David Robertson: Davos Companies query safety standards Chinese sweeten deals with dams

The world’s largest mining companies are turning to the UN and the World Bank in an attempt to prevent China freezing them out of Africa, The Times has learnt. The heads of more than a dozen mining companies representing assets of more than $700 billion (£357 billion) met in secret at the World Economic Forum at Davos last week. The group, dubbed the “governors”, met at the Hotel Fluela on Thursday in a six-hour session covering all major issues facing the mining industry. Among those present were Paul Skinner, the chairman of Rio Tinto, Tony Trahar, chief executive of Anglo American, Jonathan Oppenheimer, chairman of De Beers, Alexei Mordashov, chairman of SeverStal, and Wayne Murdy, chairman and chief executive of Newmont Mining. One of the most pressing issues facing the industry is competition from state-owned Chinese companies, which are signing deals in Africa and freezing out Western miners. Africa has vast mineral resources that are largely untapped and, with metal prices at record highs, companies are rushing to grab the best assets. China is particularly keen to sign deals with African nations because its booming economy needs access to raw materials such as copper, nickel and zinc. Western mining companies are struggling to compete when negotiating deals because the Chinese can offer huge incentives to African nations. Chinese engineers are building dams, telecoms equipment, football stadiums, roads, railways and power stations across the continent. In return for these deeply discounted or gifted projects, they are winning rights to explore and exploit vast areas. The World Bank estimates that China last year spent more than $10 billion on infrastructure projects in Africa, including motorways in Nigeria, a telephone network in Ghana and an aluminium smelter in Egypt. China is also putting significant efforts into its diplomatic relations in Africa. Hu Jintao, China’s President, is to start a ten-country tour tomorrow. Last year, 48 African leaders, including Robert Mugabe, President of Zimbabwe, went to Beijing to discuss business partnerships and received $5 billion in development loans. The most ambitious plan of the mining “governors”, and perhaps the most fanciful, is to ask the UN to mandate that countries must sign deals that require participants to meet high environmental and safety standards. Chinese miners have a poor reputation in these areas and one chief executive who was at the governors’ meeting said that Africa was being “raped and pillaged” by China. This charge has been levelled at Western mining companies for years. However, environmental legislation and lawsuits have forced Western companies to raise their game and now they want China to play by the same rules. Another strategy developed by the governors was to contact the World Bank’s International Finance Corporation (IFC), which invests in projects in developing nations. Partnering the IFC would let Western miners offer the same sort of incentive-laden deals as China. The governors also want to work with environmental groups and organisations such as Oxfam to encourage African leaders to demand more guarantees from China. Not all the governors agree about the effectiveness of these strategies. One big miner is seeking joint ventures with the Chinese, swapping its know-how for access to the Chinese market. It also wants to partner Chinese companies in Africa.