Thursday, June 25, 2009
Even More Gold for China?
It is 8:25 AM, the coffee is cold and it was all hands on deck in the shop this morning! We'll make this a short one so you can get back to work. There is some interesting news coming out of China this morning that may prove supportive of higher gold prices as it plays out. The Report signaled that China had more gold reserves than the world thought last April in the blog, Lower Propane Bills and More Gold in China. Before April the reserve estimate was 600 metric tons; on April 25th, the China News Agency Xinhua announced that current reserves were actually 1,054 metric tons. The Eureka Miner's Market Report said then:
"This puts China on par with present investor holdings in the gold ETF, GLD (1,105 metric tons as of 4/22) and number seven in the gold reserve list (the United states is still number one at 8,133 tons). So now, the awaking dragon is not only the world's largest gold producing country but has also been putting it away on the sly. The good news is that China demand supports gold prices and may offset the potential volatility of large investor holdings."
This morning, Reuters reports:
BEIJING (REUTERS)- China should buy more gold because the dollar is poised for a fall and the metal is needed to support the greater international role envisaged for the yuan, a senior researcher with the ruling Communist Party said on Thursday.
Li Lianzhong, who heads the economic department of the Party's policy research office, said China should use more of its $1.95 trillion in foreign exchange reserves to buy energy and natural resource assets.
Speaking at a foreign exchange and gold forum, Li also said that buying land in the United States was a better option for China than buying U.S. Treasury securities.
"Should we buy gold or U.S. Treasuries?" Li asked. "The U.S. is printing dollars on a massive scale, and in view of that trend, according to the laws of economics, there is no doubt that the dollar will fall. So gold should be a better choice." (Reuters, 6/25/09)
There is no suggestion in this article that Li is revealing an agreed party line but there does seem to be a favorable sentiment developing towards gold given the revelations of last April. Down the road it seems China also has plans for the yuan:
"If the yuan should go international or become a reserve currency, China needs more gold to back that," Li said. When the yuan does become an international currency, which Li acknowledged was a long way off, he said the composition of the SDR should be reformed to include the Chinese currency. (Reuters, 6/25/09)
The SDR stands for "special drawing rights" and refers to a basket of currencies established by the International Monetary Fund every four years. Presently its composition for 2006-2010 is:
USD (dollar) - 44%
EUR (euro) - 34%
JPY (yen) - 11%
GBP (pound sterling) - 11%
Apparently China wants more gold and a chance to add the Yuan to the SDR basket. Let's get this all down to where the goat can get at it. Whether it is inflation fears or the Chinese, demand support for gold should grow. The ole Colonel said a few weeks ago that if gold dropped to $920 he would buy, and he did.
Enough talk, let's walk the walk:
Oil is up $1.67 to $70.34 in midday trading (August contract); Gold is up $3.3 to $937.7 (August contract); Silver is up $0.075 to $13.985 (July contract); Copper is up $0.0520 to $2.3195(July contract); Molybdenum is steady-eddy at $10.58.
The DOW is up 153.79 points to 8453.65; the S&P 500, up 31.78 points to 917.92. The miners are still rocking:
Barrick (ABX) $33.18 up 1.76%
Newmont (NEM) $42.53 up 1.21%
General Moly (Eureka Moly, LLC) (GMO) $2.35 up 2.62%
Freeport McMoran (FCX) $50.28 up 3.03% (a bellwether mining stock spanning gold, copper & molybdenum)
Steel stocks are snapping back (a "tell" for General Moly):
Nucor (NUE) $45.07 up 2.01% - domestic steel manufacturing
ArcelorMittal (MT) $33.08 up 1.82% - global steel producer
POSCO (PKX) $81.87 up 2.79%- South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is back in the black, up 1.81% to $1,002,280.55.