This is important because the Chinese are becoming increasingly affluent in large numbers. Total consumer spending was $1.7 trillion in 2007, compared to $12 trillion in the U.S. But that number is growing rapidly. The FT focused on the new rich. China now boasts more millionaires than the U.K. The rapid growth of this group has companies all over the world spending more money and time figuring out ways to get in their pockets.

So what do the affluent Chinese like? Outside of ordinary things like flashy cars and booze and quirky things like ivory and dried seahorses, one thing was mentioned in the FT piece that caught my eye: The Chinese love gold.

“China loves gold in all its forms,” the FT reports, “as a reserve currency, jewelry, an investment.” I’ve mentioned in the past about how the Chinese central bank doubled its holdings of gold this year, but it’s more widespread than that.

The rising middle class in China also buys a lot of gold. Since 2007, Chinese consumers have been the second largest purchasers of gold jewelry in the world, behind only India. The FT points out those gold sales were up 28% year over year in May. Total gold demand for the year was up 21%, to 400 million tonnes. There are not too many sales of any kind going up that much in this financial crisis, but there it is.

The financial crisis and weak stock market have helped gold as people look for a place to park some money. I think gold will remain a good place to be for some time yet. And gold stocks have the stars lined up for them. Many are reporting falling cash costs, yet the price of gold is staying up here in the $900s — and is likely headed much higher. That means gold stocks are reporting good increases in cash flow, among the few sectors to do so.

Source: What the Chinese Are Buying and How to Own it First

He reminds us that “in 1933 the US government banned the ownership of gold by US citizens and purchased all but rare gold coins from the US public. They did this, at $20 an ounce. Two years later they revalued gold to $35 an ounce, a 75% revaluation” which instantly gave the government a lot of new, but still 100% gold-backed money to spend!

What a blatant, brazen theft! And nobody says anything! But let me take a few bucks out of the employee pension fund, petty cash drawer or the coffee jar, then it is some kind of “big deal” around here and everyone wants me to get fired! What kind of crap is that, huh?

Anyway, so how much gold are we talking about? Well, the total amount of gold above ground that you can put your hands on is estimated to be about 140,000 tonnes, which is approximately 90% of all of the gold that has ever been mined, which is estimated to be 160,000 tonnes.

Added to that, there is an annual mine production of roughly 2,500 tonnes of gold, but which is becoming harder and more costly to find and mine.

Perhaps it is all this talk of confiscation of gold that has Doug Hornig of Casey Research’s Gold & Resource Report commenting that when FDR made private ownership of gold illegal in 1933, the dollar was on the gold standard and thus 100% backed by gold.

The difference between then and now is that “we have long since abandoned the gold standard, and Obama doesn’t face FDR’s constraints on monetary inflation” which is (insert sound of trumpet fanfare) the winner of the coveted Mogambo Award For The Understatement Of The Week (MAFTUOTW).

It wins for two reasons, the first being that is so terrifyingly true! There are no constraints on the government getting the Federal Reserve to create as many dollars as it, or anyone, needs or wants, and thus it is beyond ludicrous to even compare the 1933 gold-backed dollar against the pathetic piece of almost-worthless fiat money that the dollar has become, to which Mr. Hornig alludes when he says that Obama has it easy, as “However much money is needed to finance his New Deal Redux, he can have it. All he has to do is rev up the printing press or turn an unlimited number of bits and bytes into electronic cash.”

And he is, alas, absolutely right. Unlimited amounts of money can be created just by asking for it. In fact, no one has ever disputed that fact, as it is the whole reason behind having a fiat currency! Hahaha!

In relation to the prospects for a confiscation of gold, he asks, “Given this kind of clout, what does he need gold for?” which is exactly right! If you can print money to spend, why do you need gold to sell to get money to spend? Hahaha!

Unfortunately for Mr. Hornig, he does not go on to the Mogambo Bonus Round (MBR) because I must deduct points from his score since he is grammatically incorrect to end a sentence with “for”, as in his “need gold for?”

Instead the sentence should have properly read, “Given this kind of clout, for what does he need gold?” which IS grammatically correct, so you can see the crucial difference!

And perhaps it is this “correct grammar” thing that makes the colossal incompetence of the Federal Reserve even more terrifying when adding that undertone of grammatical precision to the nightmare that the Fed created so much money and credit that it allowed the dollar to lose so much purchasing power since 1933 that gold is now almost $1,000 per ounce, up from the $20-to-$35 per ounce rip-off that financed the whole New Deal for a decade! Grrrr!

Of course, I would love to go on and on from there, waxing evermore contemptuously lyrical and angrily ever-louder about why I despise the un-Constitutional, un-holy Federal Reserve and everything it stands for, which is summed up in the Mogambo Big Book Of Economic Stuff (MBBOES) as “Purposeful inflation in money and credit by a central bank to create unprecedented amounts of debt for unbelievable of amounts of consumption that inevitably leads to ruinous inflation in consumer prices and ruinous deflation in asset prices such that it destroys the entire economy, which will soon lead to many, many poignant stories of ordinary men and women who, along with their doomed children, are wandering around, dazed and lost, living under bridges and overpasses, calling themselves Lost Children Of The Mogambo (LCOTM), forever bleating for pity that they did not listen when he told them to buy gold because their government was acting so insanely with fiscal and monetary policy, and now they are being cruelly punished by persistent price increases against which these people can only offer falling or stagnant nominal wages and collapsing real, inflation-adjusted wages, devalued assets, vanished wealth and disappearing jobs, which means a drastically falling standard of living until they are finally reduced to eating lawn clippings and miscellaneous bugs while screaming for revenge, whereupon the world then devolves into a dreary, post-Apocalyptic, dog-eat-dog world where, once again, for the umpteenth time in history, we learn that the dogs that eat well are going to be the ones who switched to gold when their governments started wallowing in such fiscal and monetary lunacy, which is why you ought to be out buying some more gold right now.”

I would probably end the Predictable Mogambo Tirade (PMT) with something in the vein of drawing an eerie parallel between the Fed creating too much money and credit, which leads to disastrous, ruinous, murderous inflation in prices, and the fact that the American government once gave smallpox-infected blankets to the Indians, which seems so, so apropos, which deliciously rhymes so you know it must be true.

Or maybe I would angrily relate how I, a normal, tax-paying citizen, call the CIA and demand to know under the Freedom Of Information Act if they are spying on me, or if any other jackbooted, government-Gestapo thugs are spying on me or tampering with my stuff, such as messing with my dishwasher which, after about 12 years of perfect performance, is now making this strange intermittent groaning noise, like a belt slipping or something that goes rrrrRRRrrrrrRRRrrrrrr, and then they put me on hold, and then they come back on the line and tell me that nobody is spying on me, but you can tell from their voices that they are lying.

Mr. Hornig is not sure that the CIA is out to get more or that a confiscation of gold is in the cards, although “An argument can be made that the yellow metal is still useful. It runs like this: Creating money out of thin air is inflationary, and a large stash of gold, even if it doesn’t officially back anything, serves as a sort of counterweight. People around the world will have greater confidence in your currency knowing that, as a last resort, you can pay your bills in gold. And the more gold you have, the better.”

Nevertheless, Mr. Hornig speaks for both of us when he says, “all things considered, a modern-day gold confiscation is not high on our list of financial worries”, although he adds the caveat that “Never say never where government stupidity is involved”, which sums it up perfectly, making it almost unnecessary that I jump up and yell, “Buy gold, silver and oil to save your worthless butt whenever your own government is acting with fiscal and monetary stupidity, which they are doing right now, which means” (insert musical soundtrack with heavy backbeat) “you should be buying these things RIGHT NOW because investing is easy when you KNOW HOW!”

Source: Why the Government Doesn’t Need Your Gold

An interesting new wrinkle in the new agreement that it will “allow the International Monetary Fund to join as a signatory if it wishes”, which it already desperately wishes so that the IMF can aggrandize more power by being a “player” with all the fiat currencies it will collect and then be able to wield like a bludgeon.

And this 400 tons of gold per year certainly sounds like a lot, but in reality, how much gold is there?

Well, the article notes that the “gold holdings of the 10 largest signatories total more than 11,000 tons, valued at $350 billion”, and I remember writing down somewhere that the US has about 8,000 tons of gold and the IMF has 3,217 tonnes.

In case you were wondering, I casually mix up “ton” and “tonne” all the time, probably because they are almost the same, so I never bother to try to keep them straight because I am lazy and I don’t care anymore.

For the record, though, one metric tonne contains 32,150.72 Troy ounces, so 11,000 tonnes is 353.661 million ounces of central bank signatory holdings which, at almost $1,000 per ounce, is where I assume they get the valuation of $350 billion.

This, in case you were wondering why I said the words “Central Bank Gold Agreement” with such a sneering tone of scorn and loathing disrespect, is because this is another slimy, five-year, corrupt deal whereby the gold that governments accumulated over the centuries, by committing a continuous series of outrageous, murderous atrocities to acquire, are now selling the gold to get a little “spending money”, to save a little money by not having to pay the expenses of storing the gold, and to happily drive down the market price of gold.

I know what you are thinking! You are thinking to yourself, “Why in the world would the central banks be selling their gold, which drives down the price of gold, which plays right into the hands of The Mogambo, who is happy to buy gold at these bargain prices because he knows that the price of gold will rise meteorically as inflation in the prices of consumer goods rise meteorically in response to the money supply rising meteorically thanks to the Federal Reserve creating it and the federal government borrowing it and then immediately spending it in meteorically-rising amounts for years and years and years, which makes buying gold such a no-brainer that he is known to squeal with girlish delight, ‘Whee! This investing stuff is easy!’”

Well, obviously, since I know that governments send their secret agents to spy on me all the time and sabotage my life, we can be sure that they are not keeping the price of gold down for my benefit! Hahahaha!

No, what they want to do is drive the price of gold down so that the price of gold does not rise against their currencies, which is what you would normally expect from the inflation in prices that would result from these selfsame repellent, dishonorable, corrupt, thieving governments creating additional excessive amounts of paper, fiat money to try to buy their way out of the national inflationary bankruptcy they caused with their prior years of creating and spending excessive amounts of paper, fiat money! Hahaha!

Puru Saxena of Saxena Wealth Management notes, “It is interesting to note that only 160,000 tons of gold has ever been mined from the face of this planet and at US$950 per ounce, it is worth US$4.9 trillion. Now, consider that the total amount of paper money in circulation (currencies, savings, deposits, money-markets and CDs) is worth US$60 trillion, or approximately twelve times the value of the gold in existence.” Wow! Twelve times!

The way I am screaming hysterically that everyone should buy gold reminds me that gold rises in price because its value remains relatively constant, because of all of its valuable inherent properties, while the purchasing power of the paper money used to bid for gold goes down and down, each unit of money buying less and less gold and each unit of gold buying more and more money, which tips everyone off that “That Screaming Mogambo Weirdo (SMW) was right! We’re freaking doomed by inflation! We gotta buy gold, silver and oil right away!” which, naturally, makes their prices rise even further! Whee!

But by flooding the market with government gold, this short-circuits this “canary in a coal mine” (or more properly “Mogambo in a raging snit”) inflation alarm so that us proletariat chumps don’t panic at the horror of huge inflations in prices that are usually reflected in the price of gold which, unfortunately, always follow a huge inflation in the money supply.

This time, because it involves a commodity, I figure that it has the added benefit that slimy insiders/bullion banks can now do all kinds of slimy arbitrage tricks by buying government gold at a (theoretically) falling market price as 400 tons a year come barreling into the market to swamp demand with a deluge of supply, as well as leasing government gold at almost zero percent rates, maybe somehow running it through some Exchange Traded Funds that are shorted for some reason that I don’t understand, maybe hedging risk in the futures and options markets, perhaps bundling together a few derivatives to “lay off risk”, and making money, money, money with which to pay taxes, taxes, taxes, which I figure is the whole point, from the government’s perspective.

It’s like a license to print money while driving down the market price of gold to help disguise the inflationary horrors of, for example, a federal government deficit of 13% of GDP!

The federal budget deficit is almost 1 out of every 8 dollars of national economic activity, and the total amount of government spending will sure be, when including the inevitable future Supplemental Appropriations, over $5 trillion this year, which means that federal government spending – by itself! – is 35.7% of America’s $14 trillion GDP!

Now if you can get me to shut up my screaming, screaming, screaming in horror at such fiscal insanity for one lousy minute, I will add in another $1.5 trillion for the spending by the states and another half trillion by local governments and school boards, and suddenly we are looking at (ignoring double counting the federal aid to the states which is included in the state’s budgets) a potential of $7 trillion in total governmental spending, which is HALF OF GDP!!

I am sure that you noticed the two exclamation points, the way my voice is now screeching at full volume and revolting specks of spittle are flying through the air as I stomp around the room, cursing loudly and incoherently, that I am upset that governments now spend half of the entire economic output of the Entire Freaking Country (EFC)!

If you are a true Junior Mogambo Ranger (JMR), your blood suddenly turned cold and a sense of doom fell upon you.

Now, imagine the horror of those who are NOT, alas, Junior Mogambo Rangers (JMRs), and thus who probably do not buy gold, silver and oil because they do not know that they should be doing that when their government is acting fiscally and monetarily insane!

When you do know, however, investing is easy! Whee!

Source: Canary in a Gold Mine

“[We] must control the risk of real estate loans,” said a mystery banker. “In the first half of the year, our country’s banking loans expanded rapidly… but the loans growth has led to accumulated risks also increasing.” Our man of the moment said his banking sector had become “not prudent and impulsive” in issuing loans for new housing projects, many of which have falsified their capital levels to meet current standards. He urged lenders to “strengthen risk management” right way, before they loan themselves into poor credit positions.

So who is he? Robert Shiller, who just recently suggested another housing bubble could be in the mix? Or maybe some vintage Ben Bernanke, circa 2007? Nope… Liu Mingkang, the head of China’s version of the FDIC, said the above over the weekend at a conference in Beijing. China bulls take heed.

And at the risk of belaboring the obvious — he’s Chinese. We know what kind of exigency would get an American regulator to speak out against a bubble in the making. We imagine it’s far more politically dangerous for a member of the Chinese government to publicly go against the grain.
Back in America, the housing market rejoices: Housing starts climbed an unexpected 3.6% in June. According to the latest from the Commerce Department, builders broke ground on new homes at an annual rate of 582,000 in June, well above the Street’s expectations and the “best” month for housing starts since November. Curiously, single-family homes led the way, with a 14% building boom from the month before. That’s the biggest one-month gain since 2004.

Of course, this is a “signal that the housing market was improving” in June, as The New York Times suggests. But we dug up a longer-term chart of housing starts this morning that didn’t inspire as much confidence. Starts may have come up from the deep blue abyss, but we’re yet to emerge from uncharted waters

And who says more housing starts are a good thing? We may be market simpletons, but we’re under the impression home prices are falling because demand is exceptionally weak and supply is exceptionally high. So explain to us again how adding more inventory to the 3.8 million existing homes on the market helps stop the bleeding.
Over 1.53 million homeowners were in the foreclosure process in the first half of 2009. That’s an all-time high, said RealtyTrac late last week — and up 9% from the last half of 2008 and up 15% from the same time last year.

Around 1.9 million individual properties are in some form of foreclosure, or one in every 84 U.S. properties. And we’re adding new homes at an annual rate of 582,000? Really, we must be missing something this morning.
The stock market is still giddy over recent earnings surprises. The S&P 500 finished last week up 7% after companies like Intel, Goldman Sachs, JP Morgan, IBM and Citigroup all beat earnings.

Today the market looks poised to finish in the black again. CIT, the commercial lender we discussed Friday looks like it might live to fight another day. The lender managed a last-minute debt-equity deal with bondholders that will give them another $3 billion to play with. (Look for this crisis to repeat in a couple weeks.) Still, the market has dodged a bullet, and is up about 0.5% as we write.
“In last week’s market, you could almost feel portfolio managers reacting to the prospect of missing a rally,”writes Dan Amoss, a former money manager himself. “Career risk drives many irrational investing decisions. And missing out on a rally is a cardinal sin for portfolio managers. This goes a long way toward explaining this week’s rally.

“The consensus seems to be looking for a return to something resembling the environment before the credit crisis. They’ll be waiting for a long time. Sure, there are still lots of wealthy people. But the essence of the financial crisis has to do with most consumers and businesses stretching their budgets and capital spending plans in unsustainable fashion. The next few years will reverse this trend, and we’ll continue to see economic development in emerging markets maintain pressure on commodity prices.

“Mr. Market is now testing the conviction of the bears. But through the rest of 2009, the momentum favors the bears. The stock market is far below its peak, but this is justified by long-term fundamentals. In fact, the recent rally has priced in very rosy earnings for many sectors and stocks, including our short ideas.

“Remain patient with your short positions. This rally will end soon enough, probably by the time the fourth branch of government — the mega banks — are done reporting their paper trading profits and we learn more about the bleak outlook for earnings in the real economy.”
Four more banks failed this weekend. Two in California, one in Georgia and another in South Dakota got the FDIC kibosh late Friday. That makes 57 failed financials for 2009, at an FDIC cost of over $13.4 billion.
After a long flight from Baltimore to Vancouver, we were able to move through Canadian immigration last night with relative ease, but many Czechs and Mexicans were suddenly not welcome. Just another sign of the times… the Canadian government recently legislated rules that prohibit any Mexican or Czechoslovakian from entering Canada without a visa.

Canadians say political and economic strife in both nations has caused a wave of immigrants seeking refugee status, many of which are bogus. So the Canadian government drafted the law last Monday and enacted it on Tuesday… Canadian diplomats in Mexico City have been ripping their hair out ever since:

The scrum for last-minute visas at the
Canadian embassy in Mexico City

Heh, nothing stokes a free market like sudden and severe travel restrictions.
We’re in Canada this week for our Investment Symposium (more below in the P.S.) and got a visceral reminder of the loonie’s recent strength. 98 cents to the U.S. dollar at the airport currency exchange! No thanks… we’ll wait till we stumble upon a bank.

The Canadian dollar is once again rapidly approaching parity. The ol’ loonie is officially at 90 cents today, up a full cent since Friday and about a nickel in July. Most of the loonie’s strength can be attributed to dollar weakness. Since breaking through that historic barrier at 80 last week, the dollar index has been in steady decline. It’s at 78.9 today, nearly a two-month low.
Oil’s recent stabilization has been helping out the Canadian dollar, too. Light sweet crude traded as high as $64 a barrel today, a $4 bump from last week’s low.
Gold is performing nicely as the U.S. dollar falls. The spot price is up $20 from Friday’s low, to $955 an ounce.
“The first thing to understand,” writes Mr. Byron King, “as an old geology professor at Harvard once told me, is that ‘gold is where you find it.’ And the second thing to understand is that no matter where you look, gold is hard to find — and getting harder.

“In the past decade, gold-related exploration efforts and expenditures have increased dramatically. I’ve seen numbers adding up to tens of billions of dollars poured by mining companies into gold exploration.

“But despite the best efforts of the global mining industry, world gold production has DECREASED since early in this decade. Take a look at the chart below, depicting world gold production 1850-2008.

“I love this chart. I could spend all day discussing it. For example, look at the very steep rise in gold output during the 1930s. That was during the depths of the worldwide Great Depression. In both the U.S./Canada (blue area), and the rest of the world (gray area), people were digging more and more gold. The Soviets (purple area) increased their gold output too, courtesy of Joseph Stalin and his Gulag. Desperate times call for desperate measures, I suppose. Will that sort of history repeat this time around?”

If it does, will you be ready? Check out Byron’s favorite gold plays here.
“To back up Mr. Shiller,” writes a reader in response toRobert Shiller’s call that the new wave of “cheap” homes might cause another housing bubble, “I was Skyping a friend in Phoenix last week, and they were all excited that they just bought a foreclosed home for a ‘steal,’ with an 80/20 FNMA-backed mortgage. Not five minutes later, I read the 5 article regarding that the Phoenix market is still dropping. I still don’t think that many people (my friend included) get it that prices can still drop, and that just a 10% drop wipes out almost all their equity, since they will have to pay some sort of 6% commission. I myself have seen a greater than 20% drop on my very expensive house in Atlanta, costing me hundreds of thousands of dollars.

”My wife is an agent, and she has counted three (yes, three) home sales in our area in six months. Two of them were foreclosures. The unsold homes continue to accumulate, and the market is moving toward ‘the only sale is a short sale.’ I live in Augusta, and my prayers go to my neighbor who was just transferred up to an area outside of Detroit. I can see the wealth destruction personally, and can only imagine the nationwide ramifications.”

Source:   China’s Bubble Warning, New Home Paradox, Gold Production Sea Change, Vancouver Updates and More!

The insanity on Wall Street sent investors fleeing to safe-haven investments such as gold, which has benefited overall from the market’s volatility.

After meltdowns in banking, housing and commodities gold became the investment of choice because of its intrinsic stability compared with fiat currency. But what many investors may not know is that the decline in gold production over the past few years is expected to continue, potentially propping up gold prices for years to come.

In November 2008, the South African government said its gold production dropped by 8.7% compared with same month a year earlier.

As the world’s second largest gold producer behind China, the November drop in production remains indicative of the long-term energy and labor problems that show no sign of abating.

The crisis knocked South Africa out of the number-one gold producer spot in 2007, which it held for more than a century, when it was overtaken by China. Without a steady source of electricity, it’s unlikely that South Africa will be able to reclaim its crown.

South Africa’s public electricity company Eskom operates a feeble infrastructure unable to keep up with demand. Power failures have caused South African mines to shut down for days.  The power crisis is expected to persist at least until 2012.

Compounding South Africa’s dilemma is that experts believe all the easy gold has already been mined – meaning that the producers have to dig to record depths. While this certainly increases the cost of doing businesses, deeper mining means more power requirements.

The downward trend in South Africa’s output saw a 15% decline in production last year alone.

Supply has now tumbled by more than 75% from the all-time peak of 1,000 tonnes mined in 1970, when South Africa supplied 80% of the world’s gold.

Yes, gold is always subject to fluctuations, but the long-term prospects make it almost a sure winner.

Demand for physical gold is soaring so much that it is almost impossible to get hold of right now. And gold production is lower than in 2000. Andrew says all this means it will soon be gold’s time to shine…

More from Investor’s Daily Edge:

Gold dropped from $915 to $859 on Friday. That’s not supposed to happen while the market is crashing. What’s going on?

It’s not that gold has lost its luster. But institutional investors were forced to sell gold on Friday to meet margin calls.

If equity and hard assets continue to lose value anywhere near the rate of last week, margin liquidation will continue. And gold could go down even more.

But make no mistake about it. With the market crashing and dozens of governments printing money like there’s no tomorrow, investors want to be in gold.

Before the sell-off on Friday, the price of gold was up more than 20 percent following Lehman’s collapse.

The demand for physical gold this month has surged to what one trader calls “unprecedented” levels. The US Mint has doubled its gold-coin production but it hasn’t been enough.

Gold dealers have had to turn away customers wanting to buy coins and bars.

But it’s the physical demand (for jewelry) that ultimately decides the price of gold. Jewelry demand accounts for 60 percent of total gold demand and it’s down so far this year.

Will it pick up? The world’s biggest gold consumer is India and Diwali – the festival of lights –begins October 28th. Gold sales usually surge with the approach of this festival.

Then there’s this: Gold production today is lower than it was in 2000.

Gold is rarer than ever. The markets are going to hell. It’s gold’s time.

Source: Has Gold Lost its Luster?

For the tale of the tape, the TSX Exchange rallied 1.2%, while the TSX Gold Index tacked on 0.8% and the TSX Venture Exchange, Canada’s largest junior exploration bourse, added 0.2% with the advancing issuers out pacing the decliners by a 561 to 491 margin on good volume of 276 million shares traded.

Kadywood Capital and FNX Mining have inked a deal that has Kadywood buying for C$400 million 50% of the contained gold, platinum and palladium metal in ore mined and shipped from multiple FNX operations in Ontario. Kadywood intends to change its name to Gold Wheaton and is looking to raise C$200 million. The company also announced a deal to purchase 100 per cent of the life-of-mine gold production from the Tulsequah Chief mine in British Columbia from Redcorp Ventures. Kadywood ended the day up C$0.31 at C$0.90, Redcorp added C$0.025 to close at C$0.23 and FNX added C$1.66 to close at C$25.11.

Potash remained hot, as evidenced by investor reaction to Alix Resources and Geo Minerals news that the pair has acquired the exclusive potash rights to a total of 84 assorted locations of freehold minerals in Saskatchewan. Geo ended the day up C$0.225 at C$0.49, while Alix added C$0.18 at C$0.50.

The junior bourse may well be heading into its traditional summer slumber but the trading volumes suggest that we could have a rather active next few months. We will see what Monday trading has in store.

Source: Resource Stock Roundup: Saturday, June 14th, 2008