Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold Price Drops Amid Stimulus and Poor Data - 21st Jan 21
Protecting the Vulnerable 2021 - 21st Jan 21
How To Play The Next Stage Of The Marijuana Boom - 21st Jan 21
UK Schools Lockdown 2021 Covid Education Crisis - Home Learning Routine - 21st Jan 21
General Artificial Intelligence Was BORN in 2020! GPT-3, Deep Mind - 20th Jan 21
Bitcoin Price Crash: FCA Warning Was a Slap in the Face. But Not the Cause - 20th Jan 21
US Coronavirus Pandemic 2021 - We’re Going to Need More Than a Vaccine - 20th Jan 21
The Biggest Biotech Story Of 2021? - 20th Jan 21
Biden Bailout, Democrat Takeover to Drive Americans into Gold - 20th Jan 21
Pandemic 2020 Is Gone! Will 2021 Be Better for Gold? - 20th Jan 21
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21
Gold Price Big Picture Trend Forecast 2021 - 13th Jan 21
Are Covid Lockdowns Bullish or Bearish for Stocks? FTSE 100 in Focus - 13th Jan 21
CONgress "Insurrection" Is Just the Latest False Flag Event from the Globalists - 13th Jan 21
Reflation Trade Heating Up - 13th Jan 21
The Most Important Oil Find Of The Next Decade Could Be Here - 13th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

China's Gold Plans and Silver's Long- and Short-Term Trends

Commodities / Gold and Silver 2010 Mar 12, 2010 - 04:41 PM GMT

By: Przemyslaw_Radomski

Commodities

Best Financial Markets Analysis ArticleWhen politicians talk it is always a good idea to try and read between the lines.
This Tuesday China's chief foreign exchange regulator, Yi Gang, told reporters that China is not interested in increasing its gold reserves.

Really?


Mr. Yi’s speech was accompanied by a downswing in the gold price - they moved lower by mere $3 within an hour of his speech but since then the market seems to have absorbed the news and moved on. On Wednesday speculation grew that accelerating inflation will force China to raise interest rates.

Investors and newsletter writers (we among them) have long speculated that China has a pressing need to start buying gold to reduce its giant hoard of U.S. dollars. We conjectured that China might buy the 191.3 tons that the IMF wants to sell. After all, what could be more logical than to buy the gold off-market?

But Mr. Yi, who is the director of the fortuitously named SAFE, (China’s State Administration of Foreign Exchange) had a few things to say that seem to put a damper on the planned Chinese gold party.
 
“Gold is not a bad asset, but currently a few factors limit our ability to increase foreign exchange investment in gold,” he told reporters.

He noted that gold tends to be volatile and that gold’s returns are not steady enough to allow SAFE to increase investment in the yellow metal. Buying gold would cause the price to shoot up.

China realizes that it would be difficult to buy all the gold it wants without sending the price through the roof. That would be like an elephant shopping in a china shop. Let’s keep in mind that in April 2009 the price of gold received a boost from China’s first acknowledgment that since 2003 it had increased its reserves by 454 metric tons to 1,054 to become the world’s fifth largest holder of gold. China accumulated the gold quietly without the whole world noticing and without elaborating on where it had sourced the additional bullion. It was believed that the gold came from domestic sources and may have included refined scrap metal.

Based on data from the World Gold Council, China is the world’s largest gold producer and the second-largest consumer of gold, after India. Chinese annual gold output is approximately 300 metric tons, while the nation consumes roughly 400 metric tons per year, according to Mr. Yi, who also serves as vice governor of the People's Bank of China.  China’s gold holdings represent only a small portion of its total foreign-exchange reserves. According to figures of Chinese holdings at the end of 2009, gold comprised approximately 1.6% of China’s foreign-exchange reserves at the current market price of gold.

So, if you take Mr. Yi at his words, it would seem that China doesn’t have plans to buy gold on the open market. That may well be the case, but we find it hard to believe that China is giving up its quest to increase its gold holdings. It would seem a more prudent course of action to publicly say that you don’t want to buy gold, but to buy relatively small amounts on dips when no one is paying attention.
 
There are other possibilities and here is where we need to read between the lines and see what other Chinese officials have been saying about gold. An official from the China Gold Association told The China Daily that rather than buy gold from the IMF, China would buy gold directly by buying gold mines "abroad" thus giving China a constant and permanent supply without moving the markets.

China is in an awkward position. It can’t buy gold on the open market without sending prices through the roof; neither can it unload U.S. Treasuries without sending those prices through the floor. So what can China do?

By saying that it is not interested in gold China hopes to keep the prices down, and by creating the illusion of confidence in U.S. Treasuries, it can prop up a market "too big to fail" long enough to exit slowly over time. Speaking of the U.S. Economy, this week we would like to comment on the precious metal with multiple industrial uses - silver. Let's begin with the very-long-term chart (charts courtesy of http://stockcharts.com.)

Beginning with the very-long-term chart - silver is still showing long-term strength (along with positive fundamentals) with higher prices projected out to 2011. This estimation is founded in a large part on the long-term cyclical turning points present on the silver market that we've originally featured in the November 13th 2009 Premium Update (Subscribers only). Please note how precise that particular signal was in timing the end of the rally.

Consequently, the end of the 2011 is also likely to mark a significant turning point in the price of silver.

However, the shorter-term price situation is not as bullish.

The above chart suggests that silver will be a bit anemic over the shorter-term. Although it was not clearly visible in the past weeks, looking at the charts with the RSI and stochastic readings in mind, silver’s historical cyclical tendencies point to a downturn. This decline could be easily triggered by a downturn on the general stock market.

There's one more thing that we'd like to emphasize as far as silver is concerned. Please note that the white metal has been recently rather reluctant to move lower along with other parts of the PM sector. This might be seen as a short-term bullish sign at the first sight, but we believe that this interpretation might be misleading. First of the two reasons is silver's high correlation with the main stock indices, which have been rising lately (but are not likely to move much higher) and the second one is that this is exactly the way one should expect silver to behave during the topping process.

Please take a look at the mid-August 2009 top, mid-October 2009 top, late-November 2009 top, and the early-January 2010 top. They have all begun with a small consolidation, during which silver didn't move much lower, which gave hope to all silver bulls. Still, a sharp slide followed erasing profits of those who refused to close their long positions in the white metal. Again, this might be the case also today.

Summing up, speculative bullish positions right now should be done with extreme caution, and only if you are able to monitor the market for almost the whole session. We realize that it doesn't sound encouraging especially for active Traders, but opening a speculative position at this point doesn't seem justified from the risk/reward point of view. Naturally, that is just our opinion and since it is ultimately you, who manages your money, we respect and are perfectly fine with whatever decision you make.

To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, I urge you to sign up for my free e-mail list. Sign up today and you'll also get free, 7-day access to the Premium Sections on my website, including valuable tools and charts dedicated to serious PM Investors and Speculators. It's free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

P. Radomski
Editor
Sunshine Profits

    Interested in increasing your profits in the PM sector? Want to know which stocks to buy? Would you like to improve your risk/reward ratio?

    Sunshine Profits provides professional support for precious metals Investors and Traders.

    Apart from weekly Premium Updates and quick Market Alerts, members of the Sunshine Profits’ Premium Service gain access to Charts, Tools and Key Principles sections. Click the following link to find out how many benefits this means to you. Naturally, you may browse the sample version and easily sing-up for a free trial to see if the Premium Service meets your expectations.

    All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

    By reading Mr. Radomski's essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Przemyslaw Radomski Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Glenn
15 Mar 10, 14:43
China's Gold Plans

Who amongst us would reveal your true intents when doing so will thwart your major geopolitical and economic objectives?

China is smart, cautious, secretive and is playing for the end game.

They do not have to buy gold on the open market that would be silly and counter-productive. They can mine it to their heart's delight and not reveal their true output. Thus building their gold reserves to a credible level and then announce the YUAN is based upon a gold standard and voila they will move the rest of the world to an alternative reserve currency; perhaps gold, YUAN, or some hybrid. They will stop buying Treasurys when they are ready and when it suits them. The USA will then either default or more likely inflate themselves out of debt. Our standard of living will at best stagnate for decades. The USA will be finally forced by outside forces to live within its means since the debt doors will be closed.

END Game - USA loses, China wins.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules