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Gold Price To Double As China Prepares To Increase Its Gold Holdings Tenfold
From Rosie's morning update:
Gold just capped off its best month in a year — up 14% in November and 34% so far in 2009. Not even the S&P 500 can compete with that. Helping drive the latest gains was the news out of the China Gold Association that the country’s gold demand is on pace this year to exceed 450 metric tonnes, a 14% increase over the 395.6 tonnes in 2008. (In contrast to India, jewelry sales are up double-digits in China so far this year.) By way of comparison, China, which recently surpassed South Africa as the world’s largest producer, is on its way to 310 tons of newly mined output this year, or more than 30% below its level of demand.
It’s not just the middle-class in China that is starting to buy gold, but the central bank, which has very deep pockets, is going to do likewise. We just came across a Bloomberg News article quoting an official from the state-owned Assets Supervision and Administration Commission (Ji Xiaonan, the Chief) as saying “we recommend China increase its gold reserves to 6,000 metric tons within three-to-five years and possibly to 10,000 tons in eight to 10 years.” China’s reserves, after a 76% buildup since 2003, currently stand at 1,054 tons, so we are talking here about the prospect of some pretty heaving buying in coming years.
If China were to lift their gold reserves to 5,000 tonnes, which is equivalent to about two years of global production, that shift in demand would boost the gold price by $800/oz to around $2,000 ($1,978) based on our models. If China moves towards 10,000 tonnes, well, that would end up taking the gold price to $2,623/ounce if our calculations are in the ball-park.
Make no mistake, we are gold bulls. Central banks have deep pockets and production of gold is stagnant so the demand-supply backdrop for bullion is bullish. At the same time, we have to pay respect for market positioning over the near-term. The market for precious metals is overextended right now after the parabolic move of the past two months. The net speculative long position has swelled to a record 273,552 contracts (100 ounces each) on the COMEX. Open interest has never been higher, at 693,661 contracts. So this is one crowded trade — as is the short-trade on the USD against all the major currencies, especially the commodity-based units.
So, we could get a meaningful gold correction at any time, and we are talking about a correction in what is still a secular bull market — the 200-day moving average is $970/oz, which means we could get as much as a 20% pullback and no fundamental trendline would be violated. We remain long-term gold bulls, and our commentary remains fundamentally bullish, but anything that could spark a countertrend rally in the U.S. dollar, which is our principal near-term concern, would put gold at a much better price point for investors than the peak we are at today.
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The tiny size of the gold market should scare the crap out of anyone who is not long gold.
If you don't own gold and there is short supply and it increases to $2,000 you should be scared? Perhaps 'annoyed' to have missed the rally, but 'scared'?
"The tiny size of the gold market should annoy the crap out of anyone who is not long gold."
It just doesn't make sense, does it? The tiny size of the gold market enables massive moves in short time periods, and anyone who wants to not be "annoyed" by severe loss of buying power during a USD event should be....apprehensive? After all, it is not that gold is going up, but that your dollars are going down. Are you wealthy enough to be merely annoyed by a 40% loss of your real wealth? What's your point?
i'm not sure he has a point though your assertion that dollars are going down is only partly correct....gold is rallying in most currencies not just USD and in any event USD is broadly unchanged over the last month
I think THE trade for the next year is long gold in terms of $AUD, both in terms of being hedged in the low volatility scenario and being a spactacular winner should both legs perform
look at the performance of aussie FI .... next move aint a rise
Yes. Scared is absolutely the correct word to use because it means that ALL paper financial assets including the fiat money you call "dollars" have had their value cut in half in real terms without any sort of nominal "crash" happening. Physical Gold will be the only asset safe from the fire that is about to engulf all paper assets.
Great, so in the short term, it could go either up or down. Got it.
unless it doesn't
Hmmm, sounds like 95% of forecasts you hear.
What if the number of investors via Comex that actually end up taking delivery increases significantly???
london would be effed
REPORT FROM CHINA
Comex, this is an article on China and I WAS JUST IN CHINA for various reasons. It is not like Dubai or India in that gold does not just flow through the streets. Still, I walked into any numbers of banks and they have 20 gram, 50 grams, 100 gam, 200 grams etc bar there you can purchase (at about $1300 US a troy ounce... 32.15).
While talking to 'normal' Chinese citizens and various company owners plus a few bank personnel (read: not American bankSTERS) the sentiment is that yes gold is for investing and saving. Physical gold is very easy to buy in China and some very nice 200 gram bars are decorated in glorious fashion if you want a 'show piece' versus a normal bar with the appropriate markings (weight in grams, 999, etc).
More thoughts: what I am seeing in China is an interesting mix of classic/old Chinese tradition and saving while the 'youth' appear to be spending a bit on the usual electronic toys. Cars? Lots of them and many of them quite new, as am sure everyone here on ZH knows China is selling more cars than the USA right now.
PROBLEM: The Chinese gov is right now trying to get their citizens to spend more and offering easy credit. The USA went down that road and look at where that lead to. So while my hopes are that the traditional Chinese ways of saving and maybe small spending does not get lost after two or three generations of spend and use credit. Of course the Chinese gov could change their 'tune' they are saying to the masses concerning spend spend spend and enjoy easy credit. Overall, the Chinese ARE careful with money and save PLUS all the ones I met are very smart business people. Far more intelligent on various levels on average than the average US citizen imho.
JMH-2-Yen
again... 20% correction... and who cares... there r some people here who buy from BOE 10yr ago at 250... 20% here, 20% there... whatever. I honesty think, anyone who been buying gold and who is not 15yr old, should have their average somewhere in 500-600 range, well within any 20% correction... and if you are 15 - trade SPX..
Stock market up, GS down. Was the same yesterday but flipped until EOD when both converged. Weird price action lately.
Tungsten?
Makes sense. They don't want to repeat the mistake of holding paper money that makes them vulnerable politically,so they convert some of their excess account surplus into gold. and this way,they also raise the networth of their citizens(at least they are telling them to buy gold)without having to unpeg their currency,thus allowing for continuation of high employment. O.K. So they are telling the FED that weakining the dollar is not going to work. So is that a check mate for BB?
"Bunch of sideshow barkers" /Fed
i think they really mean months and not years. the dollar wont last that long. also they have bid again for a gold-copper mining firm is OZ too. glad i doubled up yesterday.
If the correction does come, the Chinese will buy more, no?
This is China's way of saying to the oligarchs that they will not float their currency but they will destroy the relative value of the dollar in the process...
Rememer every dollar that is spent on gold is NOT SPENT ON TREASURIES, OR USD ASSETS.
essentially a middle finger to the oligarchs and western central bankers
This is equivolent to a financial soap opera...what isn't funny is that everyone around the world is suffering as the power struggle continues
If China remains on this course, this is a huge sign that they have lost confidence in the USD, and as such, will mean divestiture from USD holdings, albeit gradual. With the China trip, what the administration was attempting to do was increase USD confidence, not decrease it. I know I will be watching to see if China significantly reduces Treasury holdings over the next year.
Mark Beck
Gold $1200.90
Silver $ 19.19
Platinum $1491.00
Palladium $ 390.00
11:29:30 EDT
Retail gold- $ 1,196.90/oz
100 oz. Dec. delivery- $ 929.90
200 tons purchased by India- about $ 385.00/ oz.
Keep blowing that smoke boys.
200 metric tons of gold for $6.7 billion is $950/ounce at the beginning of Nov.
Can it interpret that China would like to swatch to semi gold or gold standard within 10 years time frame?
no, under a gold standard, the chinese can't have an artificially low currency and they think they need it to import employment from other countries.
12 years ago a poster by the name of "Another" expressed his thoughts on gold. These posts have been archived and I would suggest these posts require careful study. They may radically change your beliefs about gold and its relationship to oil and the US dollar.
http://www.usagold.com/goldtrail/archives/another1.html
That guy is on the web on his own now I think - some great stuff there;
http://www.fofoa.blogspot.com/
"""Gold Price To Double As China Prepares To Increase Its Gold Holdings Tenfold"""
[[[ and do so at a huge Discount if The Crooks prevail ]]]
I call this RED HERRING
The coup de grâce
I posted my view on this here before. I'm waiting for People to awaken...to The Crooks who have been hammering the thought of China having to ReValue the Yuan. the Crooks all use the same Script, of course, they all say a 40% Raise in the value of the Yuan is needed, for starters.....the Fact that this would allow China, and The Crooks to then buy Gold and Silver, along with any other Commodity, at a 40% Discount, has, so far, slipped by...even those who otherwise see Bernanke, Paulson, Geithner, the Corp. Elite, the MSMedia, etc., for what they are, haven't acknowledged that this is the largest Scam of all. Haven't the Warning Flags raised seeing that this comes from the very same Gang ?
Look at it this way. I'll use a $1,000 Piece of Gold, through to June 2005 it took 8,280 Yuan to equal $1,000/USD, it now takes 6,282 Yuan, The Crooks want it to be 4,000 Yuan for $1,000/USD...Who Benefits? You get the picture now ? This also Increases the Purchasing Power of the Workers in China, and haven't this same group been hammering the table for them to Spend, Spend, Spend, and stop saving so much.....so this way they get the equivelent of a Huge Pay Raise w/o the Companies actually having to numerically raise the Pay rate...the new consumers of the World; China and the EastBloc Nations, the BRICettes. The BRICettes = BRIC plus Asia, x-Japan, most of South/Latin America, and assorted other countries.
Geithner Warning on Yuan May Renew U.S.-China Tension
Jan. 23 (Bloomberg)
================================
Paulson promotes letting yuan rise
Martin Crutsinger ASSOCIATED PRESS
Wednesday, December 3, 2008
Treasury Secretary Henry M. Paulson Jr. said Tuesday that China must continue allowing its currency to rise in value against the dollar as part of reforms to address trade tensions with the United States.
Mr. Paulson praised the Chinese for allowing their currency to rise in value by more than 20 percent against the dollar since July 2005, but said it's critical that currency reform process be allowed to continue.
American manufacturers contend that undervalued Chinese currency puts them at a competitive disadvantage and is a key reason for the huge trade gap between the two countries.
"Making this shift will take bold leadership and decisive structural reforms to boost demand among households," Mr. Paulson said in a speech previewing his upcoming trip to China. "As I have said in the past, continued reform of China's exchange rate policies is an integral part of this broader reform process."
The U.S. and other major trading partners have long complained that the yuan is undervalued.
American manufacturers contend that the yuan is undervalued by as much as 40 percent even with its increase in value since the summer of 2005. They argue that the Chinese government is manipulating the yuan's value to gain unfair trade advantages against U.S. companies.
[[[ deduct 40% and you get 4 to $1 ---up to June 2005 it was 8.28 to $1]]]
First, Chinese students LITERALLY laugh at Turbo Timmy in his face.
Second, the Chinese will do what is in THEIR best interest.
Third, the USA is in debt to the Chinese to the tune of hundreds of billions.
Any questions?
Dear T. Durden Esq.,
Following on Rosenberg's commentary, could we see a more granular analysis of the paper vs. physical market determinants for this metal?
If I think I know the People's Bank even half as well as I do, any derivatives would be purely a means to an end, and apart from occasional anecdotal hyperbole on runs on troy ounces at bullion dealers, I am afraid I do not have a great sense of the prospective dynamics of this underlying-market and its true dislocation with its futures.
As a for instance on the level of detail that would be of interest, are there any major end-users actively entering the futures writing market? Anticipated at $1200/$1500/$2000? All but the fools among us rebalance at some point.
I have a strong suspicion from the resolute gold-commentators on this site that a sharpened understanding of the specific risks of various 'gold vehicles' may also benefit some fellow ZH followers. Such an analysis could serve as a gold extension of targeted macro bets from our colleague Aswath Damodaran’s recent remarks (posted here: http://aswathdamodaran.blogspot.com/2009/11/macro-bets-general-framework...).
Thank you for your consideration and keep up the good work.
I have 16 barrels of oil in my back pocket.
What's in YOUR wallet?