- The Chinese have US$2T of USD and US treasuries to dispose of. They are spending it on hard assets like base metals, agricultural commodities, gold and whatever hard asset they need for their economy. They know that the USD and treasury market is heading towards failure big time.
- Market Intelligence reports :
Increased gold buying by China is dominating the Australian mining industry, a new report has claimed. According to Companies and Markets, Chinese companies are purchasing stakes in Australian assets as “foreign investment rules are liberal and encourage inward investment”.
A number of approaches from Chinese businesses for Australian assets are being considered by the government, including a AU$2.6 billion (£1.3 billion) bid for Oz Minerals by China Minmetals.
The Australia Mining Report for the second quarter of 2009 also revealed that the country remains a “world leader” in the industry and is the third-largest producer of gold behind China and South Africa.
Some of the biggest names in the global mining sector operate in Australia and Companies and Markets predicted that “the election of a more business-friendly liberal government” that took place in September 2008 will benefit the industry.
Meanwhile, John Burbank, founder of Californian global hedge fund Passport Capital, recently forecast that China will purchase higher levels of the precious metal in the future, as its gold/gross domestic product percentage is currently relatively low at around 0.8 per cent, Manual of Ideas reported.
- The trouble in the treasury market and the collapse of the USD will see this come true. Paul Learton comments :
Gold was, is, and always will be THE ultimate storehouse of value. Mankind was prizing this stuff during the prehistoric period, long before the concept of stocks, mutual funds, or paper money even existed. Now, I know what you’re thinking, “gold has already risen from $250 to $900 an ounce, how much higher can it go?”
Much, MUCH higher, my friends. No investment ever goes straight up or straight down. During the last bull market in gold, the precious metal rose 2,329% from a low of $35 in 1970 to a high of $850 in 1980. However, during that time, there was a period of 18 months in which gold fell nearly 50% (see the chart above).
As you can see, from mid-1971 to December 1974, gold rose 471%. It then fell 50%, from December ’74 to August ’76. After that, it began its next leg up, exploding 750% higher from August ’76 to January 1980.
Now, in its current bull market (2001 to March 2008), gold rose over 300% from $250 to a little over $1,000. And just like in the mid-70s, it began showing signs of weakness after its first big rally up to $1,014 in March ’08. At one point, it even fell to $700, a 30% retraction. Granted, it wasn’t a full 50% retraction like the one that occurred from 1974-76. But we are experiencing a financial crisis. And gold is the most common catastrophe insurance.
If we were to go by the historic pattern of the gold market in the ‘70s, gold should experience upwards resistance for 19 months after its first peak today. Gold’s recent peak was $1,014 in March ’08 (roughly 14 months before the writing of this report). If this bull market parallels the last one, then gold should renew its upward momentum in a very serious way starting in October 2009. And this next leg up should be a major one (the biggest gains came during the second rally in gold’s bull market in the ‘70s).
$1 in… Is Worth Today 1970 $5.49 1980 $2.58
For gold to hit a new all time high adjusted for inflation, it would have to clear at least $2,193 per ounce. If you go by 1970 dollars (when gold started its last bull market) it’d have to hit $4,666 per ounce.
Bottomline: gold is nowhere near a peak adjusted for inflation. And if history is any guide, we should begin another MAJOR bull rally for gold sometime in the late summer/ early autumn of this year. You should consider taking advantage of this to load up now.
Disclaimer – I am not a financial advisor. This is not an advice to buy, sell or hold any stocks or bonds or any precious metals.
- The day of reckoning is inching closer day by day. The US Dollar index is breaking to new lows for the year. It looks like it will be heading for a test of 78 soon. And thereafter will drop to 72. Will it go even lower? Yes definitely! It will go as low as 52.
- What is not so apparent is the fact that most fiat currencies in the western world is wobbling. I still think there will be a global monetary crisis this year. Gold will fare very very well.
- Mark Gilbert comments :
The odds on the dollar, Treasury bonds and the U.S. government’s AAA grade all heading for the dumpster are shortening.
Several policy missteps suggest that investors should stop trusting — and lending to — the U.S. government. These include the state’s pressure on Bank of America Corp. to buy Merrill Lynch & Co.; the priority given to Chrysler LLC’s unions over the automaker’s secured creditors; and the freedom that some banks will regain to supersize executive bonuses by giving back part of the government money bolstering their balance sheets.
Currency markets have been in a weird state of what looks almost like equilibrium for the past couple of months. What’s really going on is something akin to an evenly matched tug of war that fails to move the ribbon tied around the center of the rope, giving the impression of harmony while powerful forces do silent battle until someone slips.
“All currencies are being debased dramatically by their central banks at extraordinary speeds and so in relative terms it appears there is no currency problem,” Lee Quaintance and Paul Brodsky of QB Asset Management said in a research note earlier this month. “In reality, however, paper money is highly vulnerable to a public catalyst that serves to acknowledge it is all merely vapor money.”
Why pick on the dollar, though? Well, not necessarily because the U.S. economy is in worse shape than those of the euro area, the U.K. or Japan. The biggest problem is that external investors — particularly China — have more skin in the dollar game than in euros, yen or pounds, which makes the U.S. currency the most likely candidate to meet the cleaver in a crisis of confidence about post-crunch government finances.
China owns about $744 billion of U.S. Treasury bonds in its $2 trillion of foreign-exchange reserves. Chinese exports, though, are dropping as the global economy weakens, with overseas shipments declining 23 percent in April from a year earlier, leaving a nation that has already expressed concern about its U.S. investments with less to spend in future.
‘Heavy Hand of Government’
Those kinds of concerns are starting to surface in a steepening of the U.S. yield curve, driven by an increase in 10- and 30-year U.S. Treasury yields. The 10-year note currently yields 3.23 percent, about 235 basis points more than the two- year security, which marks a near doubling of the spread since the end of last year.
“When the government parks its tanks on capitalism’s lawns, that spells trouble for those who invest, add value and create jobs,” says Tim Price, director of investments at PFP Wealth Management in London. “Trillion-dollar bailouts do not only leave massive public-sector deficits in their wake, they also leave the presence of the heavy hand of government all over industry and markets, so the outlook for government bonds is less promising than the economic textbooks on deflation would have us believe.”
Earlier this month, the U.S. reported the first budget deficit for April in 26 years, with spending exceeding revenue by $20.9 billion, even though that’s the month when taxpayers have to stump up to the Internal Revenue Service and the government’s coffers should be overflowing. So far this fiscal year, the U.S. shortfall is $802.3 billion, more than five times the $153.5 billion gap in the year-earlier period.
For the fiscal year ending Sept. 30, the Congressional Budget Office forecasts a record deficit of $1.75 trillion, almost four times the previous year’s $454.8 billion shortfall and about 13 percent of gross domestic product. Bear in mind that the target demanded of European nations wanting to join the euro was a deficit no greater than 3 percent of GDP.
David Walker, a former U.S. comptroller general, wrote in the Financial Times on May 12 that the U.S.’s top credit rating looks incompatible with “an accumulated negative net worth” of more than $11 trillion and “additional off-balance-sheet obligations” of $45 trillion. “One could even argue that our government does not deserve a triple A credit rating based on our current financial condition, structural fiscal imbalances and political stalemate,” he wrote.
Using the definitions outlined by Standard & Poor’s, a one- step cut into the AA rated category would nudge the U.S.’s creditworthiness into a “very strong” capacity to fulfill its commitments, just weaker than the “extremely strong” capabilities demanded of AAA rated borrowers. That seems an appropriately nuanced sanction — albeit one that the rating companies might turn out to be too cowardly to impose.