Silver slips below $17.00

[bobbyw24]

[squarepusher]

what the hell happened?

[bobbyw24]

This essay is based on the Premium Update posted November 10th, 2009


In my previous essay, apart from commenting on the current situation and suggesting that gold did not reach a major bottom yet, I also examined the situation in China. I wrote the following:


Considering the high savings rate in China (mostly in the 30% - 40% area in the previous years), gold is a logical investment for the Chinese and it’s possible that billions of dollars in Chinese private investment could move into gold in coming years. Already there is talk of China overtaking India as the world’s largest consumer of gold.


It was only in April of this year that the world found out that China had increased its gold reserves by a whopping 76 percent to 1054 tons since 2003, moving from 10th place to 7th in terms of global central bank rankings. The Chinese government now owns 30 times the gold it held in 1990. And China is believed to be a leading candidate to buy some or all of the gold the International Monetary Fund still has to sell, after India bought the other 200 a few months ago.



Keep in mind that as China's reserves continue to grow, it will have to purchase gold just to maintain the small gold-to-reserves ratio of 2 % that it currently has, let alone increase it. Therefore, the country must continue buying gold.

Even with the increase in its gold holdings, as a percent of China’s total reserves, (about 2%), gold is still a pittance, mere pocket change. Compare that with the international average of 10.2 percent held by central banks worldwide and you can understand why China is so eager to catch up. Last year China overtook South Africa as the world’s leading producer of gold and apparently a good portion of this gold is finding its way into its central bank vault.



If the newspaper reports in the China Youth Daily are accurate then China plans to increase its gold holdings by another 5,000 tons of gold over the next three to five years. That’s more than double the total annual global production. Keep in mind that the total annual global gold production is only about 2,500 tons per year, and obviously China cannot buy the whole lot. With current prices, buying 5,000 tons over the next three to five years would cost about $180 billion - still a small portion of China’s dollar reserves.



This is just speculation, but let’s consider what would happen to the gold price if China increased its gold reserves from 2% to just 5%.



At a bargain price of say, $1,000 gold, it would cost $55.3 billion to push China's gold holdings to 5% of reserves.

Chinese reserves are about $2.3 trillion, and of that, $1.6 trillion, or 70% are denominated in U.S. dollars. The cost to pushing its gold reserves to just 5%, which is still 5% lower than the global average, would be a pittance compared to the amount of money losing its value every day that China holds in its hands.



China’s problem is that it can’t buy all that gold without moving the market. I would expect China to buy on the dips, creating a solid floor for the yellow metal and eventually pushing the price of gold higher - much higher.



Therefore, there are many reasons as to why the fundamental situation remains positive, which means that the bull market is still far from the ultimate top - I believe the latest one was just a local one, and price will sooner or later move above it. However, from the short-term point of view the decline may not be over yet. In the following part of this essay I will provide you with my analysis of the silver market (charts courtesy of http://stockcharts.com.)



continue

http://news.silverseek.com/SilverSeek/1260993296.php

[YumYum]

bobby, China knows what the Fed is doing, and they are going to do it also. When our economy tanks next year, and we are hit with deflation, China is going to come in with all those FRN's and compete with the bankers buying up America a penny on the dollar. They talk $#@! about our dollar, but it is with those dollars that they are going to buy up American corporations, banks, and anything else you can think of. They too are counting on the dollar rebounding. With the dollar strong they will try to own America.

[bobbyw24]

bobby, China knows what the Fed is doing, and they are going to do it also. When our economy tanks next year, and we are hit with deflation, China is going to come in with all those FRN's and compete with the bankers buying up America a penny on the dollar. They talk $#@! about our dollar, but it is with those dollars that they are going to buy up American corporations, banks, and anything else you can think of. They too are counting on the dollar rebounding. With the dollar strong they will try to own America.

I believe that you are right, Double Yum

[not.your.average.joe]

bobby, China knows what the Fed is doing, and they are going to do it also. When our economy tanks next year, and we are hit with deflation, China is going to come in with all those FRN's and compete with the bankers buying up America a penny on the dollar. They talk $#@! about our dollar, but it is with those dollars that they are going to buy up American corporations, banks, and anything else you can think of. They too are counting on the dollar rebounding. With the dollar strong they will try to own America.

This is the most sensible thing i have heard from you... What do you suppose happens to the dollar after that??? It becomes worth a lot less. There is no way to know how gold/silver will respond to this... They will probably be buying them up along with everything else so who know if they will drop drastically..

[tmosley]

All the more reason to buy and hold tangible assets, YumYum.

[bobbyw24]

NEW YORK (TheStreet) -- Gold prices get pounded by a stronger U.S. dollar.


Gold continues to stay in a tight trading range as any U.S. dollar strength and subsequent weakness in gold prices is offset by bargain hunting. Investors seem torn between an optimistic global economic recovery, which would increase risk appetite for assets like gold, and pessimistic credit woes, which would buoy the U.S. dollar and pressure precious metal prices.

On Monday, bargain hunting initially supported gold prices in the $1,110 range as the U.S. dollar slipped .10%. But then the ">U.S. dollar index reversed rising .18$ to $77.92. Greece's recent credit downgrade has prompted investors to buy the U.S. dollar as a safe haven asset. "The U.S. dollar is really expected to extend its rally against the Euro and the Yen because there are still basic problems overseas" says Jon Nadler, senior analyst at Kitco.com.

Gold prices are expected to maintain their inverse relationship to the U.S. dollar and volatility will be high this week as volume stays light. "At the moment we have a range of support just under $1,100 with the upside being capped at $1,130 to $1,140. That's the channel we expect to trade in until at least some further data comes out this week."

Gold prices were shedding $9.50 to $1,102 an ounce at the Comex division of the New York Mercantile Exchange. Gold delivery for February, the most actively traded contract, has traded as high as $1,120.80 and as low as $1,101.

Silver prices were rising 10 cents in the beginning of the session but then lost 20 cents to $17.11. Copper was flat at $3.15.

Mining stocks, a more leveraged way to invest in gold, were mixed. Barrick Gold(ABX Quote) and Newmont Mining(NEM Quote) were lower at $38.80 and $47.02 respectively. Shares of Freeport McMoRan Copper & Gold(FCX Quote) were popping 1.58% to $77.75 while Yamana Gold(AUY Quote) was sliding 1.83% to $11.24.

The two mining ETFs, Market Vectors Gold Miners(GDX Quote) and Market Vectors Juniors(GDXJ Quote) were at $45.36 and $24.81 respectively.

--Written by Alix Steel in New York.

www.theStreet.com

[tmosley]

Investor rule number three: figure out what China is going to do, and do it first. You seem to have a good idea of what they are going to do, so you ought to bite the bullet and dive in before your opportunity is gone. Cost average if you must.