Precious Metals

[onlooker]

Beginner:

No one wants a Chinese bubble burst but, without the US, its main export market, China cannot continue the extraordinary growth rate of the last many years.  China’s growth depends upon exports.  China is now very vulnerable.

I noticed that in you posted American George Friedman’s beliefs about the world’s economies, including China’s.

To me, he is an ivory tower economist with a U.S. military background who is also an anti-communist.  I suspect he has never set foot in China and met with Chinese officials to discuss economic policies.  So, IMO his knowledge on China is warped.  If an investor was to accept his point of view on China, then gold is at best, just a piece of metal.

I am not a good armchair economist who can write about GNP, deflation, inflation, etc...  Therefore, I will provide Nobel Laureate in economics, Joseph Stiglitz’s take about the Chinese economy which is opposite to George Friedman’s beliefs.

The title is: Stiglitz: China is doing the right thing

See: http://www.thomascrampton.com/china/stiglitz-china-is-doing-the-right-thing/

China’s economy is vulnerable, but China is doing something positive about it.

China has already been in overdrive making free trade business alliances with other co-operative countries such as Russia, Brazil Argentina, South Korea, Australia, Turkey, Africa, and Venezuela.  Also, China has already negotiated currency swap deals for bilateral trade with Argentina, Malaysia, South Korea, Belarus and Indonesia as a way of unblocking trade finance and presenting the yuan as an acceptable alternative to the US greenback.   Given all the business activities taken on by China, then Joseph Stiglitz’s  thinking of China being the first country to come out of the global recession is not unreasonable.   

Can military China pull the rest of the world out of a recession?  No, and what an absurd Western concept.  China has never been out to save the rest of the world; it will take care of itself first. 

Joseph Stiglitz also writes about America’s, and China’s economies and the future of the U.S. dollar.

The title is: Nobel Laureate Dr. Joseph Stiglitz Says “The Geithner Plan Amounts To Robbery Of The American People

See:  http://www.prisonplanet.com/nobel-laureate-dr-joseph-stiglitz-says-the-geithner-plan-amounts-to-robbery-of-the-american-people.html

And

The title is Wall Street’s Toxic Message

See:  http://www.vanityfair.com/politics/features/2009/07/third-world-debt200907 

So, after reading articles on or by Joseph Stiglitz, an investor would think that gold is safe haven item which is relevant for the current global economic crisis.
 
However, I have noticed that financial critics are justifiably concerned over the mania related to China’s booming stock market.  That it may burst. 

A bust in the Chinese stock market will affect China’s economic recovery.

See:  China’s Stock Mania Revisited:  The Anatomy of a Financial Mania.

http://www.theglobalguru.com/article.php?id=118&offer=GURU001

Here's my prediction. The China stock mania will end in tears -- as has every other stock market mania in history. Indeed, place the long-term charts of the Shanghai index alongside the NASDAQ, and the patterns are eerily similar. The Chinese authorities will try to intervene -- unsuccessfully. And when the bubble pops, the negative effects will be profound. Students and pensioners stayed on the sidelines last time around. This time, they will be the most affected. If tens of millions of urban Chinese lose their shirts, they'll be looking to the government to bail them out -- or else, they will turn very angry. Not even Chinese mandarins have power over the laws of financial speculation.

But, the Chinese like the Europeans have a long history of accepting gold as a safe haven in times of financial crisis.  Therefore, bad news about a possible China’s stock market crash could be good for gold.

So, I continue to think that until the global financial crisis is over; Russia, China and the U.S. will continue to have strong reasons for fighting over gold.

[onlooker]

News on gold, China, U.S. Treasuries

China should buy gold to hedge U.S. dollar, official says by Zhou Xin and Alan Wheatley, Reuters  Published: Thursday, June 25, 2009

See:  http://www.financialpost.com/news-sectors/story.html?id=1731492

BEIJING -- 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, also said China should use more of its US$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."

There is no suggestion that Li, even though he is a senior researcher, was enunciating an agreed party line.

......

Li said a second reason for buying more gold would be in anticipation of the yuan one day becoming a reserve currency.

[Beginner]

Thanks Onlooker for going to all that trouble.  You know the old saying:  A man convinced against his will is of the same opinion still.  Well, truth to tell, you do not entirely convince me.

Stiglitz is impressive, with his Nobel Prize an’ all.  He plays the part of “good cop” but to me they are all the same bunch, they are all working for the long-term goals of history whatever those may be.  We needn’t go into that now.

Yes, you are right.  George Friedman impressed me mightily.  His is a very broad overview and he uses geography to good effect.  You are right he is detached in his ivory tower as an economist and does not talk of the world economic and financial meltdown.  For his long-term view our financial crisis is of little consequence.  So he has no answers to our immediate problems.

As for George Friedman being an anti-communist I do not know.  The US has always been pro-communist China even when it pretended to be pro Chiang Kai Shek and pro-Formosa/Taiwan.  Down through the years, all the technological and scientific advances and research that cost the US billions of dollars went straight away to communist China by hook or by crook, by deliberate US government grant or via known US espionage agents.  In living memory there has been only one genuine US anti-communist and that was the late Senator Joseph McCarthy and look what happened to him.  He never knew what he was up against when he started his campaign but he didn’t last very long.  Anyone who tries to stop history does not last very long. Hitler tried to stop history too and look what happened to him.  He only succeeded in advancing history.  Hitler was used as a foil to advance history and to further the goals of history.

Whatever happens on the political scene the US will remain number one into the foreseeable future – that is why I am impressed by Friedman when he speaks of political reality.  China may continue to be favoured by the US because the US is involved in history and the US seeks to further the goals of history.  But the US may also begin one day to isolate China, so as to turn China away from Western markets and cut China off from Western raw materials in Europe, the Middle East, Asia and Australia.  But that time is not yet.

Then China may be forced to turn to Russia and that could mean war.  That is not what Friedman foresees.  That is what another historian foresees but we will wait to see if there is any truth in this theory and we hope that the “innocence” of Stiglitz prevails.

I am not in gold but would like to be (if I had the money) and especially when China (if ever) starts to invest in gold.  That should send the price rocketting.  I have the feeling time is running out fast.  No one knows for sure what is coming next but there are no real signs that things are going to change for the better. 

 

   

[onlooker]

I guess we can agree to disagree on George Friedman and the future political scene of the U.S., China, and Russia.
   
But, that is very o.k. with me.  I like examining opposing views because it keeps me alert.  It helps me from developing tunnel vision, and then being blindsided in my investments because I had refused to think about someone else’s way of thinking.

[jjj000]

not to get too political or off track, but in terms of world politics someone recently summed up something that I was particularly struck by.  And I can't recall if it was on this board or on a news or blog or whatever so forgive me for not giving proper credit or for repeating someone here.

But with all the recent unrest in China, and the potential for more coming if the divide between rich and poor continues to grow with a contracting economy... the best way to distract from all that is (and always will be) a war.   And right next door they have a dangerously underpopulated, fragile nation in Russia that is competing for the same gold and energy resources.

I just wonder if the temptation to engage in a war with Russia might eventually be too hard to resist.

What would the US do if a war between China and Russia broke out???  Crazy to think about it...

[Uboat]

What would the US do if a war between China and Russia broke out???  Crazy to think about it...

Economic wars seem more likely. Russia has already wooed China to gang up on the US dollar dominance.  A battle about resources is already in progress and includes water and rare earth.

http://www.platts.com/Metals/News/7928122.xml?sub=Metals&p=Metals/News&?undefined&undefined

[jjj000]

well... economic wars have been going on for decades.  I'm talking about China trying to use a real war to deflect civil unrest within their own country by focusing attention on an outside adversary... and really Russia would be their best option.

btw, that article mentions two of Jimmy Boy's latest rare earth rec's.  I didn't see though, did Dines recommend any coffee or casino or rental car companies in the past 3 months??? 

and while I'm talking about newsletter writers... anyone have an update on our favorite political exile Mr. Armstrong?  Seems like his cycle may have passed by with little or no fanfare... or is there some looming date coming up I need to set my google calendar for???

[MetalMeister]

For those of you who follow the Precious Metals...

I think I forgot to give you this one last May.  Means just as much today as it did in May!!

About the silver supply:

http://www.geocities.com/old_bluu_eyes/SilverSupply.php.htm

[onlooker]

Just like GOLD, GOVT's are not selling SILVER. According to BUTLER we assume that CHINA was the BIG GOVT SUPPLIER for many years. I believe 2008 was the first year that CHINA DECIDED to stop supplying silver at BARGIN BASEMENT PRICES. Not only is CHINA adding to its GOLD RESERVES as it mentioned a few weeks ago...they are HOLDING ON TO THEIR SILVER.

and

From Sunseeker:  August 13, 2009

Chinese warm to silver:
http://prudentinvestor.blogspot.com/2009/08/chinas-silver-bulls-are-on-loose.html

It looks like China has lots of physical silver to sell.  That there may be no actual shortage of physical silver in the world.

However, I am not at all worry about this possibility.  China has learnt how companies or governments can hoard a commodity in order to keep its price up.  For examples, De Beers and diamonds.  Australia government and its natural recourses (uranium) as shown by the recent failed deal between Rio Tinto / Chinalco.

[sunseeker]

Hi Onlooker
Talking of shortages Chinese farmers are reportedly hoarding copper and nickel:

http://www.theglobeandmail.com/globe-investor/what-do-chinese-farmers-have-to-do-with-the-price-of-copper-plenty/article1256380/

http://www.zerohedge.com/article/chinese-pig-farmers-speculating-metals


There’s a bubble just waiting to be popped if ever I saw one.

ATB 

[onlooker]

Hi SS:

What is it between animal breeders and commodities?  These Chinese pig farmers / copper investors remind me of the American thoroughbred horse breeders (the Hunter brothers) / silver investors.     

Yup, I agree with you that these “savvy” Chinese investors may suffer the same fate as their American counterparts. 

[sunseeker]

Hi Onlooker

What is it between animal breeders and commodities?

In one word GREED.
A very good point Re the Hunt Bros. I had forgotten that they where horse breeders.
 
Thought for the day:
The market for copper and nickel crashes. The farmers loose their shirts. How will that effect food production and prices? Does the market factor in the farmer’s desperation and lower the price of food products (at least in the short term)? Would the price of food go up because those farmers get their farms repossessed, and the farms stand idle? Does the price of food go up because the farmers need to get a higher price to keep in business?

If the farmers are a lot more savvy than I give them credit for and they actually make a killing will they be that interested in farming?

Either way I see food disruption in China and with all those mouths to feed that could be a headache.

Apologies for high jacking the “Precious Metals” thread.

ATB

[onlooker]

Hi SS:

When it comes to passing on investment information, there is absolutely no need to apologise for any thread drifts.     Only spammers are not welcome to drift into any forum found on this website.

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More good news for PM investors.

I am a fan of Ed Steer’s daily comments on gold and silver.  This August 21, 2009, he brought up something that may not be common knowledge to people interested in PMs.  That price spikes in PMs at the COMEX are allowed. 

See:    http://news.silverseek.com/TedButler/1072818610.php

[sunseeker]

Hi Onlooker

While it's a shame that the people at the NYMEX and CFTC are doing such a poor job regulating the silver market, they are also presenting you with the gift of mispriced silver. It would be wrong not to accept that gift.

Downside very limited.
Upside unlimited. 

Good post. I for one didn’t all know that. Silver’s looking even better and better.

ATB 

[MetalMeister]

I didn't know that either.

Had not been reading Ted, or anybody for that matter, lately.

Thanks!