As the U.S. economy continues to writhe in the clutches of recession, sustainable growth — both in corporate profits and economic output — seems distant.
In China, however, near-term recovery is a reality.
Real estate, automobile, and industrial sales have all rebounded, driving stocks on the Shanghai exchange up as much as 85% for the year.
In fact, the acceleration of China’s comeback has been so strong the World Bank recently increased its estimate for the country’s GDP growth this year from 6.5% to 7.2%.
All of this makes China an alluring prospect for investors again. Especially when you consider. . .
China’s Gold Investment Potential
In the mid-1990s, the Chinese government revolutionized the country’s gold industry.
Lawmakers began reforms that encouraged small gold producers to consolidate and, more importantly, allowed foreign companies to form joint ventures with Chinese companies.
It was a brilliant move.
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Foreign companies — mainly from the United States and Canada — brought modern mineral exploration techniques, management practices, financial controls, and industrial, environmental and safety standards.
The single most important asset foreign companies brought the Chinese gold industry, however, was money.
As foreign investment capital gushed into China, the number of projects skyrocketed, leading to new gold discoveries.
As a result, China’s total gold production has steadily increased 7.4% annually and 66.9% since 1999. And in 2007, China became the world’s largest gold producer, overtaking South Africa, which held the title as top gold producer for over 100 years. Take a look:
Gold production in China continues to rise.
In the first half of this year, Chinese gold production has increased 13.5% year-on-year to 146.51 tonnes, worth almost $5 billion at current gold prices.
Further growth in Chinese gold production is forecast for the rest of 2009. Estimates suggest China’s total gold output for 2009 will near 300 tonnes, solidifying the country’s position as the world’s largest producer:
China’s Gold Reserves
Despite a significant increase in production over the past several years, China is still a very “gold poor” country when considering the country’s gold reserves.
China controls the seventh largest gold reserve in the world with 1,054 tonnes. But these reserves only represent 1.8% of the nation’s total foreign reserves. Compare this to the United States, which holds 8,133 tonnes of gold, representing 78.3% of its total foreign reserves.
Also, with a population of 1.33 billion, the world’s most populous country only holds 0.0280 ounces of gold in its reserves for every Chinese citizen. Compare this again to the United States, which holds 0.9436 ounces of gold in its foreign reserves for every American citizen.
China is, however, rapidly increasing her gold reserves.
Since 2003, the country has increased its reserves of gold by 76%. And with all the talk about diversifying from the American dollar, it is likely that China will continue increasing her gold reserves going forward.
The future is China. By 2050, it’s estimated that China will overtake the U.S. as the biggest economy in the world. I recommend keeping a close eye on China and Chinese gold stocks.
There are several new Chinese gold stocks that I am currently investigating. I will keep you updated on my findings in upcoming issues of Gold World.
Good Investing,
Greg McCoach
Contributing Editor, Gold World
Investment Director, Mining Speculator
In as little as seven years, some estimate that China will overtake the United States in terms of nominal GDP. Others say this will happen in less time.
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While it may be a bit premature to expect Chinese gold demand to outpace Indian demand for the entire year, the gap between the two countries is narrowing. And one could easily see China overtake India in gold demand on a sustained basis within the next 10 years, perhaps even within the next five years.
Although this trend may have little overall impact on gold prices in the near future — due mainly to China’s own domestic gold production satisfying most of its internal demand — there may be implications in the not-too-distant future.
With the Chinese juggernaut continuing its rampage, even through the darkest moments of one of the toughest recessions in history, it is only a matter of time before Chinese gold production simply cannot keep up with the country’s own demand, despite accelerated output.
This imbalance, coupled with the more abstract element of speculation, should have a magnified effect on the gold market across both hemispheres.
Expect to see a strong correlation between overall growth in the Chinese economy and gold prices in the years to come.
Good Investing,
Greg McCoach
Editor, Gold World
Investment Director, Mining Speculator, and the Insider Alert
P.S. I haven’t been this excited in a long time. You see, in three weeks, we’re going to find out if one tiny mining outfit in Canada struck THE JACKPOT! Judging from the rich formations surrounding the area, dozens of geologists already agree that this find could be the best thing to happen in the gold exploration business in 50 years! I’m rapidly putting together a full report on the entire development, and it should be arriving in your email inbox early next week. You don’t want to miss this one.
Good morning everyone, Metals are trading quietly with a slight positive bias as most traders are awaiting the release of this morning’s economic data. Our background barometers are quiet and mixed. The Euro is trading 12/100ths of U.S cent lower against our Dollar at $1.4288. Euro currency traders are a little nervous with traders expecting to see improvement in today’s U.S data.
Silver is 3 cents higher at $14.98. Gold is $956.00 up $1.00 from yesterday’s wrap up level. Palladium is up $5.00 and trading at $280.00. Platinum is $2.00 higher and changing hands at $1266.00.
As for that data; we start the day with the Consumer Price Index where Wall Street expects to see retail inflation continue to be well in check. Look for the CPI to clock in at 0% compared to last months rise of .7%. The core index which excludes food and energy is estimated to have risen by .1% compared to June’s rise of .2%. No Fed worries here.
Next we get the July reading of Industrial Production where the Street is looking for signs of economic recovery. The estimate calls for a rise of .4% versus last month’s decline of .4%. If correct the number sends out a very positive signal on the economy.
Today’s final report will be the Preliminary University of Michigan Sentiment Index of Consumer Confidence where we expect to see further improvement in the consumers’ outlook. Look for the index to clock in at 69 compared to 66.
Meanwhile over in the energy markets the price of Oil sits at $70.80 up 30 cents. Over in the equities market stocks ended yesterday with last minute rise of 36 Dow points. This morning the indications are calling for a flat to slightly higher open with Dow futures pointing to a 3 point rise.
On the geo political front we find North Korea throwing out another olive branch to the west with the release of a captive South Korean worker.
On the economic calendar today:
U.S. Consumer Prices
U.S. Industrial Production
U.S. Consumer Sentiment
EZ Consumer Prices
EZ GDP
German GDP
Long-term trends point to gold prices over $1,000. . . $2,000. . . maybe even over $5,000.
But in the short-term, investors may need continued patience.
Over the past few weeks, the price of gold has been bouncing between $900 and $950 an ounce. And, following a brief visit to the higher end of that range, gold could once again slip below the $900 level. Here’s why. . .
The demand for physical gold from the jewelry, industrial, and dental sectors has significantly fallen.
Official figures from GFMS, the world’s top authority on gold supply and demand, showed a 24% drop in gold demand from the jewelry sector during the first quarter, compared to the same period of last year. GFMS data also showed a 31% drop in gold demand from the industrial and dental sector for the same period, compared to the previous year. Global gold demand figures for the second quarter of 2009 will be reported around this time next month.
Gold demand from the jewelry, industrial, and dental sectors will likely remain weak in the short-term, considering the relatively high price of gold, a weak global economy, high volatility in the market, and the seasonal lull, which is typically experienced in the summer months.
Meanwhile, there is a fairly large long position on the Comex gold futures market, which may be significantly reduced in size over the next few weeks, as speculators continue to move back into equities. U.S. stocks rallied yesterday, sending the Dow Jones, NASDAQ, and S&P 500 to their highest levels of the year.
I’m not convinced, however, that there is much hope for a real recovery in the economy. Sure there’s plenty of spin in the mainstream financial media, whose job it is to support their advertisers. But the real situation remains pretty dire.
The U.S. government is projecting a $1.84 trillion deficit for this fiscal year that ends September 30. Meanwhile, national public debt just crossed $11.6 trillion — and is growing by almost $4 billion per day.
Where will the government get the money to pay back this enormous debt and balance the budget?
Nobody knows.
The U.S. federal government claims to hold 8,133 tonnes of gold in reserves. At current prices of about $950 an ounce, this gold reserve is worth $272.5 billion. That’s only about 2% of the national public debt, which doesn’t factor in other finacial obligations like Social Security and government-sponsored healthcare, and is estimated to cost up to an additional $60-$65 trillion in the future.
If the government wanted to pay off the national public debt with the gold reserves that the Fed claims they have, it would have to sell each ounce for $40,580.
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Government insiders knows just how dire the situation is, even if their voice is suppressed by the mainstream media. Director of the US Congressional Budget Office Douglas Elmendorf recently wrote in his blog:
| Under current law, the federal budget is on an unsustainable path, because federal debt will continue to grow much faster than the economy over the long run. Although great uncertainty surrounds long-term fiscal projections, rising costs for health care and the aging of the population will cause federal spending to increase rapidly under any plausible scenario for current law. Unless revenues increase just as rapidly, the rise in spending will produce growing budget deficits. Large budget deficits would reduce national saving, leading to more borrowing from abroad and less domestic investment, which in turn would depress economic growth in the United States. Over time, accumulating debt would cause substantial harm to the economy….
…The current recession and policy responses have little effect on long-term projections of noninterest spending and revenues. But CBO estimates that in fiscal years 2009 and 2010, the federal government will record its largest budget deficits as a share of GDP since shortly after World War II. As a result of those deficits, federal debt held by the public will soar from 41 percent of GDP at the end of fiscal year 2008 to 60 percent at the end of fiscal year 2010. This higher debt results in permanently higher spending to pay interest on that debt. Federal interest payments already amount to more than 1 percent of GDP; unless current law changes, that share would rise to 2.5 percent by 2020. |
So for now, we’ll probably see gold move lower in the short-term. However, it’s important not to lose sight of the big picture, which continues to be very bullish for gold.
The gold market is becoming increasingly dependent on investment demand. This is something that we’ve been expecting for quite some time.
As we’ve discussed before, the lives of gold bull markets play out in three main stages, which generally overlap:
Stage One: Currency Devaluation
Stage Two: Growing Investment Demand
Stage Three: Speculative Mania Buying
So far in today’s gold bull market, we’ve seen strong evidence of the first two stages.
A dramatic drop in the value of the U.S. dollar against other world currencies has lifted gold prices over the past eight years. This devaluation is evident in the 42% drop of the U.S. Dollar Index, a measure of the dollar’s value against six world currencies, between the summer of 2001 and spring 2008. The dollar rallied between the summer of 2008 and spring of this year, as foreign investors bought the greenback as an alternative to their own less stable currencies in the global recession. However, due to macroeconomic issues, such as the massive debt of the United States, the dollar seems destine for continued devaluation, which will continue to be positive for gold prices.
In the second stage of a bull market, gold prices continue to grow, due to increasing investment demand. Attracted by the gains of the first stage, speculators begin to buy gold as an investment. . . which further snowballs the price of gold.
Figures from GFMS show that identifiable investment demand increased 229% between 2003 and 2008.
Continuing this trend, gold investment demand continued to boom in the first quarter of this year, reflecting a desire for a safe haven from the U.S. dollar and other paper assets. Gold investment demand reached a historic high of almost 600 tonnes during the first quarter of 2009 — a whopping 248% increase compared to the same period a year earlier. In dollar terms, this represented a net inflow of $17.4 billion, up from $5.1 billion (or 42%) a year earlier.
GFMS Executive Chairman Philip Klapwijk wrote in a recent report, “Looking at the second half of 2009, investment demand, and especially its western elements, which includes activity in ETFs, futures and the OTC market, is expected to remain the driving force behind gold price movements.”
The independent consultancy group predicts identifiable gold investment will exceed 1,500 tonnes by the end of this year. This estimate would represent a 36% increase over identifiable gold investment demand in 2008.
Investment demand will be the driving force that will push gold much higher over the next several months. As I mentioned, global gold demand figures for the second quarter of 2009 will be reported by GFMS around this time next month.
In the meantime, it’s important to keep our eye on the prize. Don’t get disheartened by another pullback in gold prices. Rather, use any pullbacks to add to or establish new gold positions. If gold does in fact slip below $900, we recommend buying every ounce you can afford.
Good Investing,
Luke Burgess
Managing Editor, Gold World
Investment Director, Secret Stock Files
P.S. The most powerful governments, central banks, and investment groups in the world are still holding their gold reserves in anticipation of a significant rally in prices. This puts a virtual lock on Greg McCoach’s latest gold investment recommendation. . . which yields two times the profits made by gold. In other words, every time gold goes up 1%, you’re paid 2%. . . every time gold goes up 10%, you’re paid 20%. To read more on how you can profit from Greg’s new investment vehicle, just click here.
With gold prices getting ready to soar, we’ve decided to find out who owns the most bullion in the world.
It’s no surprise that governments, central banks, and investment funds are world’s largest holders of gold reserves. These organizations know gold is the ultimate store of value that protects against inflation and offers a safe haven during times of economic and geopolitical turmoil.
To find out who owns the most gold in the world, we referred to data from the International Monetary Fund’s International Financial Statistics Report.
The 10 biggest gold owners in the world:
 |
| Rank |
Owner |
Tonnes |
Share of Foreign Reserves
|
| 10 |
Netherlands |
612.5 |
61.4% |
The Netherland central bank, De Nederlandsche Bank, oversees the Dutch national finances, including the country’s 612.5 tonnes of gold reserves. The Dutch gold is currently worth over $20 billion and accounts for 61.4% of the country’s foreign reserves.
 |
| Rank |
Owner |
Tonnes |
Share of Foreign Reserves
|
| 9 |
Japan |
765.2 |
2.1% |
Although Japan is ninth largest gold owner in the world, its 765.2 tonnes of gold accounts for just 2.1% of the nation’s total foreign reserves. On the open market, Japan’s gold reserves would fetch approximately $25.4 billion and are managed by the Bank of Japan.
 |
| Rank |
Owner |
Tonnes |
Share of Foreign Reserves
|
| 8 |
Switzerland |
1040.1 |
37.1% |
Conducting Switzerland’s monetary policy is the Swiss National Bank, which oversees the country’s 1,040.1 tonnes of gold. The gold is believed to be stored in huge underground vaults near the federal Parliament building in Berne, but the Swiss National Bank treats the location of the gold reserves as a secret. With the world’s eighth largest reserve of the yellow metal, Switzerland’s stockpile would fetch approximately $34.5 billion in today’s gold market, accounting for 37.1% of the country’s foreign reserves.
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 |
| Rank |
Owner |
Tonnes |
Share of Foreign Reserves
|
| 7 |
China |
1054.0 |
1.8 |
The world’s most populous country also has the world’s seventh largest gold reserve. With a population of 1.33 billion, the country holds about $26 worth of gold per person, worth a total of almost $35 billion. The Chinese gold accounts for only 1.8% of the nation’s total foreign reserves.
 |
| Rank |
Owner |
Tonnes |
Share of Foreign Reserves
|
| 6 |
SPDR Gold Shares ETF |
1,120.6 |
n/a |
Originally listed on the New York Stock Exchange in 2004, SPDR Gold Shares has been one of the fastest growing ETFs in the world. SPDR Gold Shares now trade on the Singapore Stock Exchange as well as the Tokyo Stock Exchange. All of the Trust’s gold is held by the Custodian, HSBC Bank, in their London vault except when the gold has been allocated in the vault of a sub-custodian.
 |
| Rank |
Owner |
Tonnes |
Share of Foreign Reserves
|
| 5 |
France |
2,450.7 |
72.6% |
The Banque De France is responsible for France’s gold holdings, which have been reported at about 2,450.7 tonnes by the International Monetary Fund. With the fifth largest gold reserve in the world, France’s amount to about $81.3 billion, accounting for 72.6% percent of the country’s foreign reserves, which is the second highest percentage of gold in foreign reserves on our top ten list.
 |
| Rank |
Owner |
Tonnes |
Share of Foreign Reserves
|
| 4 |
Italy |
2,451.8 |
66.5% |
The Italian National Bank, Banca D’Italia, manages the country’s large gold holdings, which account for 66.5% of its foreign reserves. With approximately 2,451.8 tonnes of gold in reserve, Italy’s holdings are very close to France’s and are also worth approximately $81.3 billion at current prices.
 |
| Rank |
Owner |
Tonnes |
Share of Foreign Reserves
|
| 3 |
International Monetary Fund |
3,217.3 |
n/a |
The International Monetary Fund oversees the global financial system by following the macroeconomic policies of its member countries 185 member countries. It is an organization formed to stabilize international exchange rates and facilitate development and offers highly leveraged loans mainly to poorer countries. The IMF’s gold policies have changed in the last quarter century, but the reserves remain in place for use in stabilizing international markets and aiding national economies. The IMF’s official policy on gold as it is stated on the organization’s website is governed by the following principles:
- As an undervalued asset held by the IMF, gold provides fundamental strength to its balance sheet. Any mobilization of IMF gold should avoid weakening its overall financial position.
- The IMF should continue to hold a relatively large amount of gold among its assets, not only for prudential reasons, but also to meet unforeseen contingencies.
- The IMF has a systemic responsibility to avoid causing disruptions to the functioning of the gold market.
- Profits from any gold sales should be used whenever feasible to create an investment fund, of which only the income should be used.
 |
| Rank |
Owner |
Tonnes |
Share of Foreign Reserves
|
| 2 |
Germany |
3,412.6 |
69.5% |
The Deutsche Bundesbank, Germany’s central bank, is the most influential member of the European System of Central Banks. With a hefty 3,412.6 tonnes of gold reserves, which are valued at about $113.2 billion at current prices, Germany’s gold accounts for almost 70% of the country’s total foreign reserves.
 |
| Rank |
Owner |
Tonnes |
Share of Foreign Reserves
|
| 1 |
United States |
8,133.5 |
78.3% |
The United States holds the largest gold reserve in the world. With 8,133.5 tonnes, the US gold holdings are worth approximately $269.67 billion. This massive gold reserve represents about .9436 an ounce for ever person living in the country. The majority of the American gold is reported to be held in the world famous United States Bullion Depository in Fort Knox, Kentucky, although there is some controversy that suggests otherwise. The remainder of the US reserves are held at the Philadelphia Mint, the Denver Mint, the West Point Bullion Depository and the San Francisco Assay Office.
The top ten largest owners of gold in the world are reported to control a total of 24,258.3 tonnes, or over 855 million ounces. At current spot prices, this gold would be worth approximately $804.35 billion and represents about 15.4% of all the gold ever mined.
We continue to urge all Gold World readers to buy and hold both gold and silver in anticipation of significantly higher precious metal prices.
Good Investing,
Luke Burgess
Managing Editor, Gold World
Investment Director, Secret Stock Files
P.S. The most powerful governments, central banks, and investment groups in the world are still holding their gold reserves in anticipation of a significant rally in prices. This puts a virtual lock on Greg McCoach’s latest gold investment recommendation… which yields 2x the profits made by gold. In other words, every time gold goes up 1%, you’re paid 2%… or every time gold goes up 10%, you’re paid 20%. To learn more on how you can profit from Greg’s new investment vehicle, just follow this link.
______________________________________
From Gold World’s Gold and Guns blog…
Gold Opens Lower Ahead of July 4th Holiday
Gold Prices Last Seen Below $935 an Ounce
Gold prices opened lower this morning below $935 an ounce as the US dollar found strength ahead of the July 4th holiday in America. Markets are thin today, as many had already abandoned their desks early to headed for the nearest cookout.
Gold for August delivery was last seen at $933.30 an ounce, down $8 from this morning’s open. Silver prices were also down $0.31 to $13.44 an ounce while oil fell to $67.68 a barrel and the US Dollar Index rose to 80.505
Traders may be a bit reluctant to be long commodities ahead of tomorrow’s market closure, but this morning’s jobs figure may force an adjustment in thinking.
— Luke Burgess
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