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India & China: hoarding gold and shunning dollars

Byron King — Mon, 09 Nov 2009 16:32:05 +0000

Byron King, Whiskey and Gunpowder
Let’s review the big picture for gold. What’s going on? And what are people saying?

For much of 2009, gold traded in the range of low-mid $900 per ounce. There was a dip over the summer, with a strong upswing starting in September. Gold is now trading well over $1,000 per ounce, in fact just under $1,100.

Turns out that the government of India was buying gold in mid-October. Over a two-week span, the central bank of India bought 200 tonnes (metric tons) of gold from the International Monetary Fund (IMF) at an average price of $1,045. The IMF — over which the U.S. holds veto power for most actions — got approval to sell the gold from — where else? — the U.S. Congress, last spring.

Previously, the government of India held 350 tonnes of gold reserves. This 200-tonne purchase is a 57% increase in India’s reserves. There’s joy in India, I’ll bet. (It makes me wonder what the Pakistanis think, now that their large neighbor has both nuclear weapons AND a growing gold hoard.)

To read the rest of the story and learn more about China’s golden ambitions, click here.

US Cuts Oil Imports for the First Time Since 1977

Contrarian Profits — Tue, 20 May 2008 16:00:18 +0000

The US is finally doing something about its addiction to foreign oil, according to a report from the Department of Energy.

The report says America’s foreign oil dependency is expected to fall from 60%, to 50% in 2015. The projected reduction is due to high crude oil prices, more efficient cars, and the use of ethanol, which have cut imports of oil to the US for the first time since 1977.

The trend is likely to have significant implications for US national and foreign policies, reports the Financial Times:

… it [will be] harder to prove the case for drilling in Alaska’s Arctic National Wildlife Refuge and to reverse the ambitious biofuels production targets regardless of their impact on global food prices.

Housing Data Sends Dollar Down

Contrarian Profits — Tue, 22 Apr 2008 18:09:33 +0000

More bad news for the US economy: sales of existing US homes fell 2% in March.

The recently released data from the National Association of Realtors are more evidence of the continuing slump the US property market.

The euro hit new highs today on the news, surging to $1.60.

“In the United States and in the United Kingdom, it is clear that the housing boom has been a bubble,” says Lord William Rees-Mogg in Whiskey and Gunpowder.

“In the United States, the bubble has already burst — the only question is when the US housing market will reach its low point. Britain is following the same track, but is somewhere between six and twelve months behind.

“The fall in the house market has wiped out very important assets of the banking system, leading to the collapses of Bear Stearns and Northern Rock and the distress of other banks. It is difficult to put a figure on the contraction of credit that has resulted.

“The I.M.F. has suggested $1 trillion, which is an impressive round number. What has actually been lost is a multiple of the fall in house values, since there is a multiplier effect on credit and on the willingness to lend.

“A bank which has lost a billion dollars in the housing market, or some derivative of the housing market, will feel itself to be short of capital and will seek to draw in as much cash as it can. It may well go from over-generous lending to exaggerated borrowing, which will take it from being a net lender to being a net borrower.”

Renminbi Surges

Contrarian Profits — Mon, 07 Apr 2008 12:33:46 +0000

China’s renminbi is in the ascendant, reports the Financial Times.

In July 005 the renminbi was re-valued at Rmb8.11/$1. Now it’s close to Rmb7/$1 and has gained some 4% against the dollar since the beginning of 2008.

Is this a sign of a change in policy by the Chinese towards their currency?

Not entirely, according to the FT.

Measured against nearly any other currency you care to mention, renminbi performance looks feeble. So far this year it has depreciated by 3 per cent against the euro, the currency of China’s biggest trading partner, and 4.4 per cent versus the yen. On a trade-weighted basis, it has gained a mere 0.5 per cent, according to JP Morgan. Of course, there may be further catch-up to come, particularly if reports in local media are to be believed. Forward markets certainly expect as much: non-deliverable forwards imply appreciation of 11.3 per cent against the dollar this year.

“China is growing up,” says Greg Guenthner in Whiskey and Gunpowder.

“And now that China’s economy is well into its adolescence, middle-class spending will continue to grow. And one small garment manufacturer is preparing to ride this ‘clothing boom’ all the way to the bank.”

This is a Chinese investment play you won’t find anywhere else. To find out more, click here.