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Saturday, January 22, 2011

Chinese Demand to Buy Gold

The Chinese population of over 1.3 billion have taken up the cry to buy gold and are doing so in vast numbers.

"We are entering a period of strong seasonal growth in gold demand and Chinese New Year is a big part of that," said Brien Lundin, editor of Gold Newsletter. "Physical demand has been supporting the gold prices on the downside even during the typical slack periods, and I expect that upcoming increase in demand will also support the price, but at higher levels."

Chinese are buying gold like hot cakes as the Chinese New Year, known also as Lunar New Year, begins on February the 3rd and ends two weeks later on the 15 with the Lantern Festival.

"Chinese gold and silver demand has been phenomenal ahead of the New Year holiday," said Adrian Ash, head of research at BullionVault.com, a leading online service for gold bullion trading and ownership, citing comments from dealers among others. Shipments have been "heavy" and began very early, in mid-December, he said.

"Chinese New Year is the time of year when the Chinese share gifts, usually money in little red envelopes," said Mark Leibovit, chief market strategist for VRTrader.com. "Perhaps the little red envelopes will be a bit heavier this year."

"It's really simple," said Cary Pinkowski, chief executive officer of Astur. "China banned gold ownership for most of the 20th century and that's over. China has a savings rate of more than 30%" and "an official inflation rate of 10%."

"The Chinese will buy more and more gold just as every other civilization has in inflationary times and with their high savings rates, they have the money to do it," Pinkowski said.

And buy gold they do.

According to a BullionVault analysis, based on GFMS data courtesy of the World Gold Council, since 2005, the January through March period has seen China's private household gold buying raise an average 22% from the previous nine months,

"Long term, that's meant Chinese households have put an ever-greater proportion of their fast-growing annual savings into gold," said Ash, with that portion growing from 0.8% of retained income in 2001 to a forecast of more than 1.7% in 2010.
To substantiate this, the number of gold savings accounts opened by the Industrial and Commercial Bank of China Ltd. Has grown by over one million and with little promotion or marketing, "... an extraordinary pace of demand growth," said Martin Hennecke, associate director at Tyche Group in Hong Kong.

"China is in the process of overtaking India as the biggest national buyer of gold," said Julian Phillips, an editor at GoldForecaster.com. "At a minimum, the two countries take half the newly-mined gold and the figure is rising."

Seems the canny Chinese understand the value of gold as compared to the value of currency and the Chinese demand to buy gold looks set to continue.



Wednesday, January 12, 2011

Buy Gold with Paper Money

decreasing value of the dollar since 1971The financial world is beginning to sit up and take notice with financial experts now saying buy gold.

Robin Griffiths, a strategist at Cazenove Capital recently stated "I think not owning gold is a form of insanity." He added that the US dollar was heading for "oblivion." Just recently the president of the Kansas City Federal Reserve, Thomas Hoenig, put his neck out to state that he considers the gold standard a "very legitimate monetary system."

Mr Griffiths predicted gold's 10-year bull run would continue and even intensify. "Although it's been a top performer for each of the last 10 years, it's still in a linear trend," he said. "Eventually it will go exponential and make more in the last little bit than the whole of the 10-year trend." He added investors should regard any short-term falls in the gold price as a buying opportunity.

It was only in November last year that World Bank President Robert Zoellick and the Indiana Republican Congressman Mike Pence both called for a serious look at using gold as the 'centrepiece of international monetary reform'.

Such statements from some of the world financially literate shows the depth of distrust there is in the global financial system and indicate that floating money is running out of political cover. The obstacles to gold replacing it are starting to narrow.

Gold has been out in the cold for forty years. But this has not affected the value of gold one iota. There is no getting around it. Gold is still the bees knees when it comes to retained value. While serial price crashes have traumatized the lives of ordinary people with the values of homes, stocks and other investment assets collapsing, gold has consistently returned an investment value despite not being an investment vehicle. Those who have continued to buy gold throughout the past 40 years are now congratulating themselves.

While Quantative 'easing', a euphemism for printing more money to reduce debts continues, the value of gold remains stable. One cannot print more gold, a possible hint as to why the gold standard was removed 40 years ago. The dollar is now worth less and less each year since the gold standard was removed and each time another bucket of paper money is printed it takes more and more of them to buy goods and services and the same amount of gold as it did the year before.

Mr Griffiths said. "The downward trend in the dollar is awesomely powerful. It's vital to get yourself out of the dollar long-term on any significant rally. Continuing to own a currency that is going to be printed virtually into oblivion - that's the official policy - is crazy."

He added: "Real assets hedge paper money being printed into oblivion, so you've got to own gold and you've got to own other commodity related investments."

The motto? Buy gold, real gold, not paper gold, before it takes too much paper money to do so!



Sunday, January 02, 2011

Gold in the Hand

Is gold in the hand worth more than money in the bank and a good reason to buy gold?

In November last year Robert Zoellick made the suggestion that the world economy could do with good old fashioned gold to stabilise the worlds economy. Was this just a yelp of pain or was it a comment on the soundness of using gold as a basis for the world economy? Or was it a dawning realisation that perhaps John Maynard Keynes, considered one of the greatest economists of our time and who described gold as a "barbarous relic" may not have been right after all.

While the world rocks with massive financial debt and instability, gold continues to defiantly climb in value; a whopping 30 percent in 2010, and showing no sign of stopping.

Historically, every currency in the world has fallen against gold. Gold, as a currency, cannot be expanded or 'printed' at will. It cannot be made more than it is, you cannot stretch it, squeeze it, make it longer or thinner. You cannot cut it up and have it reproduce itself. One can try to 'short' gold of course on the market, but in short (pun intended) it cannot really be manipulated.

Printing money is like pebbles from the beach. One simply goes down to the beach and collects more pebbles if one has too much debt. Then use those pebbles to pay off the debt. As there is a virtual unlimited supply of 'pebbles' the value of each pebble decreases just that bit more as more and more pebbles are collected. Consequently where 20 years ago one ounce of gold was worth about 400 dollars, today it is in the range of 1400 dollars. Now 1400 dollars buys the same as 400 dollars purchased twenty years ago. The ounce of gold has not changed. To buy gold you now need 1400 'pebbles' But the value of the currency has deteriorated so much that one needs an extra 1000 'pebbles' from the beach to buy the same value of goods. You need a lot more 'pebbles' to buy gold these days.

Over the past decade stocks have fallen 24 percent while gold has risen 280 percent. A sad commentary on the ability to manipulate the financial market by the printing of money, but a boom for those with the foresight to invest in cold hard solid gold. Even in the 2002 to 2007 stock market boom time, gold was still beating stocks and that was before the GFC and financial bubble burst.

So what is the real value of gold? All the gold in the world is estimated to be worth (at today’s prices) around 6.5 trillion US dollars. But only five percent of that is traded around the world, around 320 billion. The mining industry produces about 2500 metric tons of gold each year, about 80 billion dollars worth and half of that is used in the jewelery and industrial sectors. Less than 40 billion is available, then, to the global investment market.

From this it can be seen that a substantial shift of funds into gold would cause a sharp rise. Even now with the price in the 1400 range a simple 6 percent rise will bring it to 1500 easily. A 30 percent increase this year will easily bring gold to over 1800 dollars an ounce.

With more institutions and pension funds looking to protect their portfolios, increases in their gold holdings are at the top of the list in an effort to offset the potential problems of heavy investment in a shaky economy.

Shayne McGuire, professional fund manager of the $500 million GBI Gold Fund for Teacher Retirement System of Texas, states in his latest book, Hard Money: Taking Gold to a Higher Investment Level, that "10,000 dollars per ounce is not out of the question". Indeed, given the massive debt the current economic system has been producing, one can ask oneself, what price is gold in the hand really worth in today's economic climate? if you want to retain your value, it is a prudent idea these days to buy gold. After all, how much are pebbles really worth?