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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.
And they consume with the same voracity as they produce.
So when the Chinese take a national interest in gold, investors should pay close attention.
China Gold Demand
On the strength of their expanding economy (which grew a better-than-expected 7.9% in the second quarter of this year), China’s national demand for gold increased 11.4% to 89.6 tonnes, compared to the same period of last year; equivalent to a 14.7% increase in dollar terms, or $2.66 billion.
Meanwhile, demand for gold across the rest of the world (excluding China), declined 18.0% to 480.1 tonnes during the same period, equivalent to a 15.6% decrease in dollar terms.
In fact, demand figures from the first half of this year suggest that China has overtaken India as the world’s largest gold consumer.
During the first two quarters of 2009, consumer demand for gold in China totaled 194.8 tonnes, equivalent to 18.7% of world total demand. In the same period, Indian demand for gold totaled 126.7 tonnes, equivalent to 12.1% of the world’s total demand. Take a look:
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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.
In the currency market, last on the Euro $1.4274 down 76/100ths of a U.S cent. The Dollar is trading on a firm note with Wall Street expecting to see further improvement in the manufacturing sector this morning. The Chicago Purchasing Manager’s Index of Manufacturing (PMI) is expected to clock in with a reading of 47.2, up again from the prior month’s 43.4. Some traders think we might actually break the 50 level. A reading of 50 or higher represents expansion in manufacturing sector. This would be a very positive economic signal.
Metals are trading flat to lower this morning after last Friday’s sharp gains. Traders are pointing to a 6% decline in Chinese stocks; and a bounce in the U.S Dollar for this morning’s lower levels. Silver is down 10 cents at $14.65. Gold is $3.00 lower and trading at $954.00. Palladium remains $1.00 higher with the last trade at $287.00. Platinum is $1234.00 down $11.00.
Over in the energy markets the price of Crude is down $1.66 per barrel on nervousness surrounding severe Chinese stock market losses. Last on Oil $71.08. U.S stocks finished last Friday with a 36 point loss snapping an 8 or 9 day run of positive closes. On an overall basis the Dow gained 38 points for the whole of last week. This morning the index is being called to open 62 points lower in sympathy with Asian and European markets.
On the geo-political front; Japanese voters ushered in a new era in Japanese politics with a sound thrashing of it’s Liberal Democratic Party at the polls. Voters have decided to turn to new leadership after 50 years of business as usual.
Today’s economic calendar:
U.S. Chicago PMI
U.K. Markets Closed
Gold:
Gold prices rose significantly in the last week and peaked at $955.45 an ounce. However, the 4-hour chart’s RSI is floating in the overbought territory suggesting that the recent upwards trend is losing steam and a bearish correction is impending. This might be a good opportunity for forex traders to enter the trend at a very early stage.
Every new forex trader hopes they will quickly find the magic currency trading strategy that will make them rich overnight. In their desperate search to make money fast, newbies tend to believe that every new strategy they encounter is the one that will make them a millionaire, so they immediately ditch whatever they were doing to follow the next new system. They never learn to apply any system profitably or even sort out the good systems from the bad. Inevitably they finish up by taking a loss.
Skipping around from course to course without delving deeply into any of them is, of course, is a surefire recipe for failure. So let’s take another look and see if we can construct a recipe for success.
Brace yourself for a reality check: there is no perfect forex system – gasp! No set of instructions to follow that will guarantee you make millions. What works in practice is sound analysis that enables you to spot a trend and then open an order to back it.
This is very different from trying to predict the market. If you trade on predictions you are effectively gambling on which way the market will jump. If you follow trends, you are waiting until a movement is clearly established before opening an order.
Of course you need to be sure that it is a solid trend and not just a momentary fluctuation that will soon go the other way. That is where the analysis comes in. Use indicators to give you a clear idea of whether the market is oversold or overbought so that when you see a movement in the right direction you can be fairly sure it will continue that way for long enough for you to profit from it.
This is the first step in setting up your successful currency trading strategy – identifying the emerging trend. It is something that will become easier with experience. In order to minimize your losses, you probably want to gain that experience in a demo account.
The next step needs to be taken as soon as you have entered the market, and it involves setting up a stop order. This is an order that will be triggered if the price goes against you and it prevents you taking a large loss. Never hang on to a losing order hoping that the movement will reverse. It probably will not, and you could be wiped out waiting. So get out, then take a good look at what went wrong. You should be glad to have losses like this in the beginning because you can learn a lot more from a mistake than from a winning trade.
Where to set your stop can vary according to your system and the risk that you are prepared to take, but 10% is a good working figure to start with. If you find that your stop is being triggered too often, move it out. Equally if you find that a shorter stop would have saved you money almost every time without being triggered by random fluctuations, you can move it in a little.
Does that sound too simple? Remember, the secret is not in the strategy itself but in how you implement it. That’s why it is pointless to hop from system to system. Develop your trading techniques and discipline, and you will soon be in a position to see that a successful currency trading strategy is very simple indeed.
When you know WHEN and WHERE the best times and places are to place your forex trades, there’s no need to waste your day (and your life) fumbling around with chart after chart.
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