There has been a
recent flurry of news articles saying China may begin to diversify into
Gold. But the articles conclude that China will move slowly, over
years, so as to not disturb the markets. Funny.
It's funny
because it's like they don't know basic math.
China wants 4000 tonnes of gold, to help "diversify" their $1.9
trillion in U.S. bonds. It's quite a joke. Please bear with me as
I explain.
A tonne of gold is 32,151 ounces. Please search
"troy ounces per tonne" at google to confirm, because this one bit of information,
and a simple calculator, can help you unlock and decipher the meaning of what
you read in the news regarding the gold market, as gold at the national level
is usually always quoted in terms of tonnes.
The total ounces
China is seeking, is thus: 4000 tonnes x 32,151
ounces/tonne = 128,604,000, or 128.6 million ounces.
That's an
interesting number because it is about half of the U.S. official gold
reserves of 261 million ounces.
It's also an
interesting number because the total annual gold market consumption is said
to be about 4000 tonnes, while annual mine production
is only about 2500 tonnes.
But let's now
multiply by the current gold price, to see how much
of China's reserves could be diversified if they obtained that, without
disturbing the price.
At $736/oz.,
times 128.6 million ounces = $94649.6 million, or $94.6 billion.
That's funny,
because $94.6 billion is not very much of $1.9 trillion, which is $1900
billion.
What's the
percentage? Simple: $94.6 / $1900 x 100 = 5%.
See, if China
diversified 5% of their reserves, they would dominate the world gold market,
buying an equal amount bought by the rest of the world in a year, and that
could crash the dollar by 50%, while gold prices could double!
And actually,
such a diversification of $94 billion would be no diversification at all,
since China has added $600 billion to their dollar holdings within the last
6-7 months, up from $1.3 trillion.
To truly
diversify, they would need to sell more dollars than they are accumulating,
so they really need to buy about $600 billion worth of gold, or more, in a
year.
How much would a
true diversification be at current prices? $600 billion / $94 billion =
6.38 times as much gold as the world buys in a year.
Please think on
that, and buy silver, instead. Because as we have seen, as gold moves,
silver moves higher faster, and runs out sooner, because it is more scarce.
Here is a quote
that has been posted for over a year at my main page at
silverstockreport.com:
"Even though
the U.S. dollar is no longer backed by gold, any holder of dollars could wise
up at any time and start buying silver or gold. China, for example, could
spend their $1.3 (now $1.9) trillion U.S. dollars in bonds and buy gold
anywhere in the world, such as Switzerland, Dubai, Tokyo.
China could even send agents to buy gold at any of the 4,000 or more coin
shops in the U.S. The dollar could drop 50% or more overnight,
and there's not a single thing the U.S. government, you or I could do about
it."
Please note the
following news items:
China Should Buy
Gold for Reserves, Association Says (Update2)
Nov. 14 (Bloomberg)
http://www.bloomberg.com/apps/news?pid=20601087&sid=aO8E.6_D2tVo&refer=home
China PBOC Mulls
Raising Gold Reserve By 4,000 Tons - Report
Wed, Nov 19 2008
http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=82afe43d-8d3c-494d-894d-113c196ed750
"China's
central bank is considering raising its gold reserve by 4,000 metric tons
from 600 tons to diversify risks brought by the country's huge foreign
exchange reserves, the Guangzhou Daily reported"
Two other quick
news items:
Iran switches reserves to gold - report
TEHRAN, Nov 15
http://asia.news.yahoo.com/081115/3/3s594.html
Saudi Arabia buys
$3.5bn of gold in two weeks
13 November 2008
http://news.goldseek.com/PeterCooper/1226586450.php
Finally, a news
item regarding China's silver.
Silver hit by
rising cost of production
10 Nov 2008
http://news.alibaba.com/article/detail/metalworking/100021066-1-silver-hit-rising-cost-production.html
Key excerpt:
"The country will increasingly rely on imports to fill the needs for
silver, he said. Last year, the country's net imports were 1,067 tons,
compared with net exports of 1,085 tons in 2006, according to customs data
provided by Zhou."
Finally, it is
keenly important to put the relation of gold and silver in perspective.
The world's
consumption of gold, 4000 tonnes is $94 billion.
The world annual
investor demand for silver is about 100 million ounces, or $1 billion.
Do you see why
silver is the far superior investment to gold? Silver will move higher
much more easily, and you will make far more money in silver.
The bulk and
weight of silver now, are the reasons why some avoid
it, and are the exact reasons why it will perform better than gold.
Fewer people take the "pain" to own it, thus, it is the more
contrary investment, and will perform better.
Reminder:
10,000 ounces of silver are available at auction this Wednesday night, at http://www.seekbullion.com/
See also, smaller
amounts of silver for sale daily at my Mom's silver shop at
www.seekbullion.com and even smaller amounts of silver for sale daily at
http://shop.ebay.com/merchant/jkesilver
Oh yes. My
mom also told me this week that she usually gets about $1 more per ounce at ebay than at seekbullion.com. But that does not
necessarily mean that seekbullion.com is cheaper, because it's not a
perfectly fair comparison, since her auctions at seekbullion.com are usually
over 100 oz., while at ebay, they are usually less.
This same
principle, China reporters seem to fail to understand. When China
moves, they will get less gold for the money, because when they move in size,
they will move the market. Communists really don't understand free
market principles, as a matter of general principle. But then again,
neither do 99.9% of Americans, who prefer paper money, instead of real
silver, and gold.
Jason Hommel
www.find-your-local-coin-shop.com
www.silverstockreport.com
www.miningpedia.com
www.bibleprophesy.org
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