Some people think the Chinese have no way to sell off their dollar reserves.

Its happening.

Media needs to spin another excuse.

China - energy and minerals

China May Boost Energy, Mining Acquisitions by Half

Aug. 14 (Bloomberg) — China, unfazed by failures to invest in Rio Tinto Group and Unocal Corp., will boost spending on oil and mining acquisitions by at least half this year to take advantage of lower valuations after commodity prices slumped.

State-owned Yanzhou Coal Mining Co. yesterday agreed to buy Australia’s Felix Resources Ltd. for about A$3.5 billion ($2.9 billion), a day after Sinochem Corp., China’s biggest chemicals trader, offered to buy Emerald Energy Plc for 532 million pounds ($881 million) to gain oil fields in Syria and Colombia.

China National Petroleum Corp.’s plan to buy Repsol YPF SA’s Argentine unit may push Chinese purchases of overseas commodity assets to $43 billion this year, a 48 percent increase on 2008, according to data compiled by Bloomberg.

“The Chinese don’t have enough nickel, don’t have enough oil, and they don’t have enough copper,” Jim Rogers, chairman of Rogers Holdings and the author of books including “Investment Biker” and “Adventure Capitalist”, said in a telephone interview yesterday. “There’s a crisis coming. They are going around the world buying up what they can. They’re preparing for a rainy day.”

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China - Hungry Dragon

I have been saying for a long time that China has been aggressively stockpiling commodities, buying mineral rights all over the globe, and buying up companies that produce products of the earth.

This signals a new tactic for the Chinese: outright unsolicited offers for mining companies.

Normally the Chinese are more reserved, tactful, willing to be patient and win via masterfully executed maneuvers – much like Sun Tzu’s Art of War.

It seems their patience, as well as their willingness to depend on the dollar retaining its value (and thus the buying power of their portfolio) is coming to an end.

I think this is the beginning of an ever more aggressive stance towards purchasing commodities and raw materials. They know the dollar is going to the deadpool of currencies, and want to buy while it still commands the value it does.

Gold will again reign as the king of currencies.

China makes unexpected grab for Canadian miner

State-controlled Jilin Jien launches a surprise bid for Canadian Royalties, a stark change in tactics for the Asian superpower

ANDY HOFFMAN

From Tuesday’s Globe and Mail Last updated on Wednesday, Aug. 12, 2009 02:44AM EDT

China’s insatiable hunger for natural resources has officially turned hostile.

State-controlled Jilin Jien Nickel Industry Co. Ltd. launched a surprise $148.5-million unsolicited takeover bid for Canadian Royalties Inc. yesterday, marking one of the first times the Asian economic superpower has gone after foreign resource assets without first winning a friendly agreement with management.

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The Chinese are continuing to stockpile raw materials, companies that produce them, and mineral rights all around the world.

They are fully aware that inflation is going to send prices of real goods through the roof, and we are heading into a long and strong bull market in tangible assets.

Yanzhou close to Australian coal deal

By Peter Smith in Sydney

Published: August 10 2009 07:47 | Last updated: August 10 2009 18:37

China’s Yanzhou Coal Mining is in advanced talks to buy Felix Resources in a cash takeover that is expected to value the Australian coal mining group at about A$3.7bn (US$3.1bn).

If the deal is agreed and cleared by regulators, it would be one of China’s largest foreign takeovers and the country’s biggest Australian deal to date.

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Alex’s Notes: Hold on to your gold, and buy more.

The Chinese are pretty smart cookies. Ya, I know, I go on and on about the Chinese, but why shouldn’t I?

In many ways, they are taking the exact same path the US took in its rise to dominance.

The US used to have strategic stockpiles of virtually everything, from base metals to rare metals used in military applications, to silver, gold, oil, etc. Today, those stocks stand depleted, or completely sold off.

China on the other hand is buying raw materials hand over fist. The copper consumption of the Chinese is off the charts for example. This is a simple and expedient way for China to diversify their massive stockpile of USD denominated foreign reserves (roughly $2Trillion) and buy up commodities while the USD is still retaining its value, as well as position themselves in the investments that will hold the greatest value moving forward.

If I were diversifying out of my reserves I would also buy US Treasuries, not because I thought they were worth anything, but because it maintains the buying power of my other $2Trillion USD…call it the cost of doing business. Keep in mind, the Chinese have also found a means of using their USD Treasuries as collateral for direct exposure to the commodities markets via hedge funds…this puts a backstop in place that if the US wanted to slam commoditites prices to prop up the dollar it would do so at the potential risk of devaluing the Treasury instruments the Chinese are using as collateral for their margin calls. Quite brilliant.

Then, when the fiat system resets, China will be holding the aces…commodities…both in raw form and the companies that produce them.

Gold and silver will be much more relevant as money moving forward, do not forget there are 1.4 QUADRILLION dollars worth of OTC derivatives currently in the process of blowing up…it is the biggest paper market on earth..that virtually no one knows about or talks about. As the current fiat currency cycle hurtles towards a reset, people will rush into ‘honest money’.

China to deploy foreign reserves

By Jamil Anderlini in Beijing

Beijing will use its foreign exchange reserves, the largest in the world, to support and accelerate overseas expansion and acquisitions by Chinese companies, Wen Jiabao, the country’s premier, said in comments published on Tuesday.

“We should hasten the implementation of our ‘going out’ strategy and combine the utilisation of foreign exchange reserves with the ‘going out’ of our enterprises,” he told Chinese diplomats late on Monday.

Mr Wen said Beijing also wanted Chinese companies to increase its share of global exports.

The “going out” strategy is a slogan for encouraging investment and acquisitions abroad, particularly by big state-owned industrial groups such as PetroChina, Chinalco, China Telecom and Bank of China.

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Chinese have a memory of fiat currency failure as it has happened a handful of times. The chinese cultural memory goes back a long ways. Metal is flowing like a river from west to east.

There is an ancient saying of ‘He who has the gold, makes the rules’. This isnt just a cliche, but rather proven out by historical evidence. Wherever the largest stocks of gold were, the nations who have held it were usually the most influential nations of their time period.

Egypt, Rome, Byzantium, Western Europe and England, then the USA.

The US gold stocks have not been audited since the 50’s, and many analysts believe that what is claimed to be there is alot more than what is actually there.

China is still making strong strides to make the Yuan a fully convertible currency. When the veil spun by the mass media comes off, people will run to whats ultimately safe, which is gold and silver.

China May Overtake India in Gold Demand, Council Says

By Sophie Leung

July 24 (Bloomberg) — China may overtake India to become the world’s top gold consumer this year, the World Gold Council said, as the nation became the first of the major economies to rebound from the global recession.

Jewelry demand in China expanded in the first quarter while dropping in India, Marcus Grubb, a managing director at the London-based council, said today at a conference in Hong Kong. Chinese gold demand will keep rising, he said.

China’s economy grew 7.9 percent in the second quarter after a 4 trillion yuan ($586 billion) stimulus package spurred record lending and consumption. India’s gold purchases slumped 54 percent in the six months ended June after a decline in the rupee pushed up the cost of owning bullion, cooling demand from housewives and jewelers, the Bombay Bullion Association said.

“There is a possibility that China might overtake India as the world’s largest gold consumer this year,” Hou Huimin, deputy head of the China Gold Association, said by phone from Beijing today. “India’s gold consumption is reportedly dropping this year due to the financial crisis.”

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Honolulu, Hawaii
July 13th, 2009AD

Here is a little global economy roundup:

Many still think the economy is on the verge of recovery. While the rest of the developing world continues to steam ahead plowing through obstacles, the western world continues to spiral downward. This still does not take into consideration ALT-A and ARM loan resets through 2011.

July 9 (Bloomberg) — The $3.5 trillion commercial real estate market is a ticking “time bomb” that may lead to a second wave of losses at large U.S. banks, congressional Joint Economic Committee Chairwoman Carolyn Maloney said.

About $700 billion in commercial mortgages will need to be refinanced before the end of 2010 and “doing nothing is not an option,” Maloney, a New York Democrat, said at a committee hearing today. This “looming crisis” may lead to significant losses for banks, force shopping center and hotel owners into bankruptcy, and impede economic recovery, she said.

Meanwhile, the rest of the world forges onward.

The IMF  claims Asia cannot decouple from the western world economies and will not continue to grow until the west recovers…this article doesn’t agree. Also….has the head economist of the IMF forgotten that China has almost $2 Trillion in savings that it can spend?

SAN FRANCISCO (MarketWatch) – China wrestled the new-car sales crown from the U.S. through the first half of the year, topping 6 million cars and trucks at a time when the long-time global sales leader grapples with historic declines.

Do you really think the worlds leaders believe all this BS about green shoots? If they did, would they be plowing money into commodities like this? Or maybe is it, that they know that if you print $13.5 Trillion (and growing) you will see massive inflation of real prices, so they are buying while its cheap and using lip service to keep the dollar value from dropping to preserve as much buying power as possible?

BEIJING, July 10 (Reuters) – China’s imports of unwrought copper and semi-finished copper products in June hit an all-time record for a fifth straight month of 475,999 tonnes, from May’s record 422,666 tonnes, data from the General Administration of Customs showed on Friday.

Rats from a sinking ship

More Diversification out of Dollar…Japan has always been one of the biggest supporters of the USD…and now there is public discussion of diversifying out of it…this is very bearish for the USD (and very bullish for gold)…this may be a prelude to a new ‘basket of currencies’ as an index to a new global exchange currency

July 13 (Bloomberg) — Japan’s opposition party, leading in polls ahead of next month’s election, said the nation should consider shifting its $1 trillion of foreign reserves away from the dollar and buying International Monetary Fund bonds.

The next world reserve currency

President Medvedev has called for a gold backed currency over and over. This time, he isnt just calling for it, he is producing examples of it. He handed coins to the leaders of G8 delegations, a proto-type of a potential new global currency…and these coins were pure gold. Any move in this direction would be extremely bullish for gold. Read an article I wrote regarding shifting to a gold back currency to understand why.

July 10 (Bloomberg) — Russian President Dmitry Medvedev illustrated his call for a supranational currency to replace the dollar by pulling from his pocket a sample coin of a “united future world currency.”

My colleagues have been right so far, having called the current economic crisis over a decade ago. This video proves it: Millennium Money as it was produced in the mid 90’s.

Our portfolios also reflect the fact that those who listened to us over the last few years are doing quite well right now. Those who did not…maybe not so much.

I will be sending out a ‘Rapid Trends Insider’ email later today with an exclusive chance to listen in on a recent round-table discussion with my colleagues regarding the global supply / demand situation, as well as an interview we did with David Morgan, one of the worlds top recognized silver analysts.

You can join our newsletter here: Rapid Trends Insider

BRICs Add $60 Billion Reserves as Zhou Derides Dollar

By Shanthy Nambiar and Lilian Karunungan

June 8 (Bloomberg) — The BRICs are buying dollars at the fastest pace since before credit markets froze in September, protecting exports even as leaders of the biggest emerging markets consider alternatives to the U.S. currency.

Brazil, Russia, India and China increased foreign reserves by more than $60 billion in May to limit currency gains as the first global recession since World War II restricted exports, data compiled by central banks and strategists show. Brazil bought the most dollars in a year, India’s reserves gained the most since January 2008 and Russia added the most foreign exchange since July.

While Russian, Chinese and Brazilian leaders suggest substituting the dollar, the central bank purchases show just how dependant they remain on the world’s reserve currency. Russia is proposing the BRICs consider creating a new unit of exchange when they meet in Yekaterinburg on June 16. China and Brazil said last month they may look at ways of dropping the dollar for trade between the two countries.

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Alex’s Notes: More moves around the USD.

For those of you who dont know, the USD is the world reserve currency, and for decades all world trade has been settled in it.

Governments of the world are not going to stand by until the US fixes it problems, China has been steadily putting the pieces in place to conduct global trade with or without the Dollar.

If using methods of trade settlement besides the dollar becomes common practice, it means further pressure on the dollar downward…which means dollars come home.
MOSCOW (Reuters) – Russia and China should consider switching to domestic currencies in bilateral trade without going to the dollar, Russia’s president Dmitry Medvedev said in an interview with Kommersant daily published on Friday.

China has already entered similar agreements with Brazil and Belarus. The deal involves a currency swap agreement between the two countries. Trade turnover between Russia and China reached about $50 billion in 2008 and is set to increase.

“I think that we can think about such positions, for example the rouble against yuan,” Medvedev was quoted by Kommersant as saying. Russia’s own attempt to switch to the rouble in bilateral trade with Belarus has so far not been successful.

Leaders of Brazil, Russia, India and China, known by their BRIC acronym, are meeting in the Russian city of Yekaterinburg on June 16 to discuss the role of the dollar in the global financial system among other issues.

Medvedev said bilateral currency deals between trade partners ease impact of the economic crisis in an environment when many countries have difficulties tapping international capital markets.

Original Article

CHINA’S revelation that it has been stockpiling gold signaled it may accelerate the diversification of its foreign-exchange reserves as a hedge against the global economic downturn, but it’s unlikely to stop buying US-dollar assets, analysts said.

China has added 454 tons to its gold reserves since 2003, bringing the total to 1,054 tons, through domestic purchases and the refining of scrap gold, Hu Xiaolian, head of the State Administration of Foreign Exchange, said in late April.

It was the first public comment on the top-secret gold holdings in the past six years. The figure confirmed what many gold bugs have suspected for years – that China has been quietly amassing a stockpile of the precious metal.

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Alex’s Notes: It is no surprise to me that China, and other smart players, are going with base commodities. Only the western world is still caught in the paper and counter party risk game.

Great article, but I disagree with the authors conclusion:

It’s much easier to spend your money on big-ticket items like entire companies than a few hundred thousand tons of raw material purchases.

Easy does not = smart. Human beings tend to seek the “easy” path more often than not, its in our nature. Easy however rarely translates into success. True wealth comes from labor, and doing what is hard and necessary, versus what is fun and easy.

So it is also with investments and the foundation of wealth – commodities are THE play for the next decade and more, because its not based on paper, and has no counter party risk. To simply buy a company and expect it is a good invstment assumes that the management will do well, and that the markets are not crushed.

Gold has no master and has value regardless of whether a particular CEO is an idiot, or whether the markets are being crushed (or manipulate, for that matter).

April 20th, 2009·

Beijing swells dollar reserves through stealth

Last Updated: 3:24pm BST 26/08/2008
The Telegraph.co.UK

Rule changes for commercial banks are acting as cover for exchange rate intervention, writes Ambrose Evans-Pritchard

China has resorted to stealth intervention in the currency markets to amass US dollars, using indirect means to hold down the yuan and ease the pain for its struggling exporters as the global slowdown engulfs the economy.

A study by HSBC’s currency team in Asia has concluded that China’s central bank is in effect forcing commercial banks to build up large dollar reserves, using them as arms-length proxies in a renewed campaign of exchange rate intervention.

Beijing has raised the reserve requirement for banks five times since March, quickening the pace with two half-point rises in late June.

This is having major spill-over effects into the currency markets because banks in China have been required over the last year to hold extra reserves in dollars rather than yuan. The latest moves have lifted the mandatory deposit from 15pc to 17.5pc of total lending since March.

“China has used the pretext of reserve requirement hikes to help slow yuan appreciation. We estimate that the PBOC [central bank] intervened by about $49.6bn in June,” said Daniel Hui, the bank’s Asia strategist.

Beijing has also slashed the amount of foreign debt banks operating in China can hold. The effect is to oblige the banks to become net buyers of dollars, halting the flow of foreign “hot money”.

Given the sheer scale of China’s foreign reserves – now $1,800bn (£970bn) – any shift in its exchange policy now ripples around the globe. The covert buying may help to explain at least part of the explosive dollar rebound over recent weeks.

There is little doubt that the key driver behind the wild currency ructions this summer has been the blizzard of dire data from Britain, Europe, Japan and Australasia. The mounting danger of a full-fledged recession across the club of rich OECD nations appears to have caught the markets off guard.

The closely watched Dollar Index reached an all-time low in March. It crept up gradually in the early summer before smashing through resistance in July.

The world’s currency system is swivelling on its axis. Central banks in Asia and Europe have stopped raising rates, and some have begun to cut aggressively. The Federal Reserve is no longer nakedly exposed. Indeed, investors are already starting to look ahead to the next round of Fed tightening.

The 18pc slide in oil prices from a peak of $147 a barrel in July has added juice to the dollar rally. Russia and the Middle East petro-powers tend to recycle a high proportion of their vast earnings from oil into the eurozone, either by purchasing European bonds or expensive imports.

A Bundesbank study found 40 cents of every dollar spent by eurozone countries on oil imports comes back again one way or another. The figure for the US is just 10 cents. This trade bias has given oil a new character as a sort of anti-dollar driving the currency markets.

Even so, the China effect is a key ingredient in the dollar comeback. Beijing’s Politburo is clearly disturbed by the sudden downward turn in the economy as export markets freeze, and surging wage inflation in the country’s manufacturing hubs eats away at profit margins.

“They are now more worried about growth than overheating, and you are seeing that play out in the currency markets. There has been a remarkable change of view,” said Simon Derrick, exchange rate chief at the Bank of New York Mellon.

China’s PMI purchasing managers index fell below 50 for the first time in July, signalling an outright contraction in manufacturing output. Hong Kong’s economy contracted 1.4pc in the second quarter. The Politburo has rushed through special rebates for textile producers now caught in a ferocious downturn.

Much of the clothing, footwear and furniture industry has been hit, leading to mass plant closures in the Pearl River Delta.

“During the first half of this year, about 67,000 small and medium-sized companies went bankrupt throughout China, leaving more than 20m people out of work,” said the National Development and Reform Commission. “Bankruptcies of textile and spinning companies have numbered more than 10,000. Two thirds are on the brink of bankruptcy.”

Last week’s rebound on the Shanghai stock market stalled on fading hopes of a fiscal stimulus package. “It is unrealistic to expect the government to rescue the market,” said Li Ka-shing, chairman of Hutchison. “Speculators should be very cautious now. The worst is not over in the global credit crisis.”

Lehman Brothers warns of a risk that a housing slump and the 55pc equity crash since October could combine with a global downturn to set off a “vicious cycle”. House prices have already fallen 18pc in Guangzhou and 9pc in Beijing. Prices are now falling in cities that make up over half China’s population.

One thing that the world has forgotten for the most part, is that gold is money. It has been parroted around for three generations as a commodity only, with little industrial use or demand, and no value as a currency.

Humans have this interesting tendency to forget history, even though through all of time it consistently repeats itself.

The cycle I am speaking of is the one where societies and economies cycle back and forth between paper fiat money backed by nothing but a governments promise that it has value, and currency that is backed by gold and silver.

This is not new, and in my opinion will happen again, as it always has, for thousands of years.

For a while now I have been going on about how the Chinese, OPEC, and other nations that have trillions of USD in their reserves are not going to simply sit on it and watch it devalue by 16%-20% a year because of a rampant monetary inflation policy of the Federal Reserve.

“Dollar crisis looms, says Nobel laureate Mundell
Reuters June 3, 2008 at 8:36 AM EDT

VALENCIA, Spain — A major dollar crisis could come within five years and China is discussing reforms to the global monetary system to protect its $1.6-trillion (U.S.) reserves pile, says Nobel Prize-winning economist Robert Mundell.

Mr. Mundell, who has regular contacts with Beijing officials, said they are considering proposing ways to fix major currencies including the dollar and the euro, in a system similar to the one which operated under the Bretton Woods agreement from the end of World War Two until the 1970s.”

If you were China and seeing this happen to your National Treasury, would you sit there and do nothing or look for a solution?

The answer is obvious.

“China is worried about its pile of about $1.6-trillion in foreign reserves, built up during years of U.S. trade deficits, which loses value as the greenback depreciates. “

The excerpts from the above Reuters article shows that China seems to be interested in a gold backed system. If this were to occur, we need to take a serious look at what it means for the price and demand of gold.

I will give you one simple equation, which you can then apply to any nation, or the economy at large. If the USA were to go to a gold backed standard, that means each dollar in circulation would then have to be redeemable in gold. The current measure of USD in circulation based on private firm analysis is above $14 Trillion USD. The US Treasury claims it has 261,498,899.316 ounces of gold according to its website http://www.fms.treas.gov/GOLD/current.html . If we were to divide the number of USD in circulation by the amount of gold claimed to be on hand in the US Treasury, it would make the price of gold $53,537.00 per ounce.

You can perform this calculation on any nations currency, if you know the amount of currency in circulation and the country’s claimed national reserves in gold.

The bottom line is, if the world heads to any form of gold backed currency system, or any world government chooses to make its own currency backed in gold, then two things would happen:

1. That country will be the best runner up for the next world reserve currency

2. The valuation on gold will skyrocket beyond the angels

“Without reform, the global monetary system is headed for a dollar crisis within years, Mr. Mundell believes. “

I sure hope you own some gold before that happens.

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Alex’s Notes: Unexpected inflation?? You have got to be kidding me.

It does not cease to amaze me how often main stream media financial analysts are either completely ignorant of how the economy works, or are deliberately creating spin to keep consumers fat dumb and happy.

The bottom line is we have added over 14 TRILLION dollars to the money supply and currently the rate of adding money is only increasing. We are about to hit 19% in terms added change to money supply.

How anyone can expect that we will not see price increases under such conditions and call themself a financial analyst is beyond my comprehension.

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India’s Inflation Unexpectedly Accelerates on Food
By Cherian Thomas

May 16 (Bloomberg) — India’s inflation rate unexpectedly rose to the highest in 3 1/2 years, adding pressure on the central bank to raise borrowing costs further to tame prices.

Wholesale prices rose 7.83 percent in the week ended May 3 from a year earlier, after gaining 7.61 percent in the previous week, the government said in a statement in New Delhi. Economists surveyed had expected a 7.55 percent increase.

Increasing borrowing costs will check the flow of money to speculators in the commodities market and rein in food prices, former central bank Governor Bimal Jalan said in parliament last month. The government, to augment monetary policy action, has persuaded steel and cement makers in the past week to cut prices and help slow inflation.

“More monetary tightening cannot be ruled out,” said Rajeev Malik, senior economist at JPMorgan Chase & Co. in Singapore. “More measures are likely as inflation is expected to remain above the central bank’s target of 5.5 percent.”

The index for fruits, vegetables and other food items rose 0.5 percent, while that for manufactured products gained 0.3 percent, today’s statement showed.

The rupee declined to 42.73 against the dollar from 42.65 before the data was announced. The yield on the benchmark 10- year bond was little changed at 7.88 percent, holding near this week’s high.

China Inflation

India and China, the world’s fastest growing major economies, are battling rising prices stoked by consumer demand and high food costs. Wholesale prices in China rose 10.3 percent in April from a year earlier, the fastest since at least 1999.

India’s central bank twice asked lenders to set aside more funds last month, raising the so-called cash reserve ratio to 8.25 percent, the highest since March 2001, from 7.5 percent. The Reserve Bank of India may raise the ratio for a third time this year to control inflation, according to six of nine economists surveyed by Bloomberg News on April 30.

India’s cement makers joined steel producers on May 14 in pledging to cut prices after Finance Minister Palaniappan Chidambaram said the government will take “administrative action” against them for behaving like cartels.

Chidambaram yesterday said there is significant scope for further reduction in cement prices. Steel Authority of India Ltd. and other Indian steelmakers on May 7 agreed to lower prices for a second time since April.

Indian Elections

The Associated Chambers of Commerce and Industry, an Indian trade organization, says it expects the combination of steps taken by the government, central bank and companies to slow inflation to 6 percent in the next four to six weeks.

Prime Minister Manmohan Singh’s government has been stepping up measures to cool prices in Asia’s third-largest economy to improve his re-election chances in a vote that must be held before May 2009.

The government wants to bring inflation down to 4 percent, to protect consumers in a nation where the World Bank estimates half the 1.1 billion population live on less than $2 a day.

Over the past two months, the government scrapped import duties on edible oils, steel products and banned the export of cement, pulses, rice, wheat and edible oil to contain prices.

Last week, under pressure from its communist allies, the government also banned futures trading in soybean oil, rubber, chick peas and potatoes to reduce speculation. It halted wheat and rice contracts last year and lentils in 2006.

Today’s inflation rate may be revised in two months when India’s government reviews the figures after receiving additional price data. The Commerce Ministry today increased the inflation rate for the week ended March 8 to 7.78 percent from 5.92 percent.

                       Week Ended    Week Ended     Percentage
                         May 3         April 26        Change

Primary articles         239.3         238.6           0.3
Fuel, power              345.4         342.5           0.8
Manufactured products    198.9         198.3           0.3
Food products            204.3         202.8           0.7
Edible oils              186.6         187.9          -0.7
Cement                   220.8         221.6          -0.4
Iron & steel             354.6         360.6          -1.7
Pulses                   241.8         243.9          -0.9
Fruits & vegetables      253.2         247.1           2.5
Total                    228.6         227.7           0.4

http://www.bloomberg.com/apps/news?pid=20601068&sid=aN4UwM8U3oQA&refer=economy

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Alex’s Notes: This quick note was fired to me from Simon Heapes, Director and Treasury Officer of The Anglo Far East Bullion Company. This was his comment and response to my post on the possibility of China holding the next world reserve currency:

2,000 yrs ago As Rome debased its currency and expanded via inflationary methods, the question must be asked who was buying the tangible productive assets?

It was the Byzantine Empire! When the Byzantines finally did over run Rome, they did not collapse it, they merely replaced Rome’s leadership with their own leadership, and effectively ran Rome as a defacto Empire keeping all the same systems in place for another 200yrs.

Finally, the Byzantium leadership broke apart from a Moral decay into the nations we call Europe today!

So the Question now, is China & the East going to do the same thing and keep the current system running further expanding globally and running inflation even further sending the cost of tangibles higher for many yrs to come? It certainly looks that way!

- Simon Heapes, The Anglo Far East Bullion Company

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Alex’s Notes: The long trend here for food, energy, commodities, metals is up. Why? Because China, Brazil, India, are all coming online with hundreds of millions of new consumers who all have disposable income to spend.

When 950 million new consumers enter a market, and they all want a car, a nice watch, a tv, a dvd player, a computer, a new refridgerator, washer/dryer, etc etc etc, it has more than a tiny impact on global demand for raw materials.

Another factor is when people who have had to mind their food budgets for generations have the ability to eat more, and eat well, they do.

Some feel we have seen the top of commodities, I have to disagree. Yes we will see normal corrections and consolidation, but the overall trend will be up for a good many years to come.

By STEVENSON JACOBS

NEW YORK (AP) — Wheat futures vaulted above $12 a bushel for the first time Tuesday as investors bet that a shortage of high-quality milling wheat will keep prices high for the grain used in bread, pasta and other foods.

Other commodities traded mostly higher, with crude oil surpassing $100 a barrel and silver hitting its highest level since 1980.

Wheat prices have surged 34 percent since the start of year, pushed higher by growing world demand, tight supplies and bad weather that has pummeled crops in Canada, Argentina and India. U.S. exporters are selling wheat a record pace to meet demand, rapidly depleting stockpiles. The Department of Agriculture expects U.S. wheat inventories will total 272 million bushels by the end of May — the lowest level in more than five decades.

“Everybody is coming to the realization that the shortage of wheat is not going away,” said Elaine Kub, a commodities market analyst at DTN. “There’s no relief coming from anywhere in the world until June,” when the U.S. wheat harvest begins.

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Alex’s Notes: Do you still think we do not have a dollar inflation problem?

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A sinking feeling for the dollar in China
By Don Lee, Los Angeles Times Staff Writer
February 19, 2008

SHANGHAI — On a frigid winter afternoon, an old dumpling of a man with buzz-cut hair was holed up in his usual spot, the corner of a busy bank lobby here. He reached into his beige fisherman’s vest, pulled out a wad of bills and turned to the people hovering over him waiting to trade currency.

There was the young woman with 40,000 Japanese yen to exchange. Another had a stack of euros. Then an elderly couple, each clutching a handbag, sidled up to the man and asked if he would change their U.S. dollars into Chinese yuan.

“No, I don’t want dollars,” he snapped, shooing them away with a wave of his pudgy hands.

Nobody here wants the lowly American dollar anymore. Not businessmen, not bankers, not even the “yellow bulls” like this man, who has been a black-market trader for years and whose presence in the lobby of a large state-owned bank is tolerated, oddly, by its managers.

As the government has allowed the value of the Chinese yuan to rise faster against the greenback in recent months than it had before, there’s been a mad dash by many more people to sell their holdings. Money-changers are so flooded with dollars that they refuse to take any more. It’s too risky, they say, because the American currency’s value is slipping every day.

In 2007, the yuan appreciated almost 7% against the dollar, and most observers expect the pace to quicken this year. Since Jan. 1, it’s risen a further 2%.

The dollar might have fallen even faster had the Chinese government let the yuan float freely instead of controlling the daily exchange rate within a narrow 0.5% band. A dollar currently trades for about 7.16 yuan, down from a high of 8.28 in the last decade.

In recent years, the dollar’s slide has been much sharper against other major currencies, including the euro and the British pound, reflecting what many experts believe is the result of the U.S.’ borrowing binge over many years. That has left the nation deep in hock to foreigners, of which China is among the biggest creditors.

“It’s meaningless to buy U.S. dollars,” said another Chinese black-market trader whose turf is in front of the Citibank branch in Shanghai’s riverfront area known as the Bund. The currency has lost its luster, he said.

“Even the government doesn’t want it.”

It’s true: China’s central government doesn’t want too many dollars for the same reason — they are a shrinking asset. Thanks to its huge trade surplus, Beijing is sitting on the world’s largest stockpile of foreign reserves — about $1.5 trillion, much of it in U.S. dollars.

One way that the government is dealing with the dwindling dollar is by spending some of it in the U.S. through its sovereign wealth fund and other state-owned enterprises. With $200 billion in assets, China’s government investment fund bought a $5-billion stake in the Wall Street firm Morgan Stanley in December.

“No one would like assets that are depreciating. And government cannot ban people from selling dollars,” said Lu Sui, an associate professor at Peking University’s School of Economics. “That’s why experts and officials are figuring out ways like encouraging people to invest overseas, acquiring companies and resources overseas, and approving [so-called] QDII investments,” which give Chinese investors a way to put their money into overseas financial vehicles, thus encouraging them to keep their U.S. dollars.

Even as it is acting to encourage citizens to buy things with dollars, or keep them, China’s government is allowing faster appreciation of the yuan, also called the renminbi. This may seem counterintuitive, but by raising the yuan’s value, and thus making Chinese goods sold abroad more expensive, Beijing hopes to slow exports a bit. That could reduce its massive trade surplus and inflows of dollars — and the accompanying political pressure from trading partners and domestic inflation that has surged to worrisome levels.

Li Yiwen, 48, was in a hurry one day recently to exchange $10,000 that her relatives in the U.S. were wiring to her. Waiting at a Bank of China branch in central Shanghai, she was anxious to see if the money had arrived.

“Today is my second time coming here,” said the laid-off electronics factory worker on a Thursday afternoon. Li said she didn’t want to wait even a day before exchanging the currency.

Just a few years ago, Li, like many Chinese, treated dollars like the most precious of commodities.

“I thought I should exchange to get dollars whenever I had the chance,” she said. “The dollar seemed to be very valuable and hard to get. . . . People even admired us because we could easily exchange for U.S. dollars.”

As back then, many ordinary Chinese today would rather trade dollars on the black market than at banks, where lines are always long. Yellow bulls can often beat a state bank’s official exchange rate by a hair. What’s more, China’s government last year set a $50,000 limit on how much one person could exchange annually at banks.

“Many feel that $50,000 is not enough, and so they use their close relative’s ID to exchange more dollars,” said Lu Yongzhen, an officer responsible for foreign exchange at a Bank of China branch in Shanghai’s old French concession district.

These days, she said, twice as many people are coming into her branch to sell their dollars as did last year.

The heavy inflow of dollars is a strain on bank branches, too, as they have to exchange or sell them promptly to prevent excess supplies.

Many Chinese businesses face a similar bind.

He Bin, manager of Zhejiang Hexin Toy Co., an export company based in Zhejiang province, collects about $1 million in U.S. dollars every month from his overseas customers. As recently as 2006 — when the yuan appreciated just 3.25% over the entire year against the dollar — he didn’t worry about quickly converting that money to yuan. His finance department usually went to the foreign currency section once a month. He figured any extra dollars in hand could be used to buy imported materials.

“But nowadays, if we get the money in the morning, we go to the bank and convert it in the afternoon,” he said, adding that he faced an even bigger headache when it came to negotiating orders.

“Just a couple days ago, one Japanese client ordered 280,000 wooden toys from us, over $500,000 in U.S. dollars or about 4 million renminbi. . . . But the products aren’t due until June and July this year. And they want us to sign the contract in U.S. dollars,” he said. “It’s very likely that we won’t be able to make any money.”

“I wish I could only be paid in renminbi and get rid of my U.S. dollars as soon as possible.”

http://www.latimes.com/business/la-fi-cheapdollar19feb19,1,4692293.story

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Alex’s Notes: In 2008, I expect we will see China come to dominate the Gold Investment market for a handful of reasons.

• The Chinese stock markets are at a high, and smart Chinese investors will be diversifying before continued corrections
•  Chinese culture has a history of great respect and desire for gold
• The new Chinese middle class has ever increasing disposable income, and the Chinese are by nature savers
• Recent legislation allowing Chinese civilians to once again own gold
• China’s Central Bank actually encourages its citizens to save in gold

The spot gold price at the London Gold Exchange reached $950/oz on Thursday; and it is very likely to hit the psychologically important $1000/oz barrier in the near future. The Chinese marketplace has attracted a lot of attraction as China’s increasing gold demand is said to be an important factor in the recent rise in the price of the commodity.

The World Gold Council (WGC) together with the Shanghai Gold Exchange released a joint announcement on February 21^st declaring that Chinese gold demand surged by 26% over the previous year to reach 326.1 tons in 2007. China has now overtaken the US and Turkey to become the world’s second largest gold consumer with only India consuming more gold annually.

The strong demand has come from both jewelry buyers and investors. The announcement also revealed that demand for gold jewelry climbed to 302.2 tons, the first time it has exceeded 300 tons in the past ten years. Gold transactions in 2007 at the Shanghai Gold Exchange rose by 57.53 tons to reach a record high of 1,828 tons, a 46% increase over the previous year.

2007 saw the Chinese gold market run smoothly allowing for the significant increase in the number of transactions. The average trade amount reached 316.49 Yuan, soaring by 62.51%, the average weight of daily trade was 7554.26 kilograms while the biggest day of trading peaked up to an impressive 24767 kilograms.

Chinese gold consumers may now choose from an increasingly long list of products, ranging from gold coins and gold bullions, to 24k or 18k jewelry. The prosperity of the gold industry indicates the perceived investment, artistic and emotional value with which a growing number of Chinese consumers are now associating gold. Larger incomes, brought about by China’s rapid development have also made a significant contribution to the rise in consumer demand.

Chinese buyers seem unfazed by surging world prices as they continue to invest in gold which they see as a safe haven from the depreciating RMB and the turbulent stock market. These factors have created a new boom for gold investment inside the country with the total amount of gold retail sales reaching 23.9 tons, a 60% rise over 2006.

“2007 is a good year for gold. China’s continuously growing economy provides us with a perfect opportunity to explore the market potential.” Said Zheng Lianghao, General Manager of WGC Far East

Shanghai Gold Exchange’s Chairman, Shen Xiangrong believes that that on the whole, domestic gold prices fluctuated simultaneously with international prices in 2007. The domestic gold price rose 22.16% from 158.99 at the beginning of the year to 194.22/g at the end of the year. 2007 also saw the Industrial and Commercial Bank of China, the Industrial Bank, the Shenzhen Development Bank, the Hua Xia Bank and the Kunming City Commercial Bank successively kick-off their gold agency services for individuals so that both the number of individual accounts and the amount of gold traded rose significantly. In 2007, the amount of gold traded by individuals skyrocketed to 17.33 tons, a 185.03% increase over 2006. This has happened as more and more commercial institutions are also investing in the gold market; commercial banks and investment companies in particular are becoming major forces in the domestic gold market.

As China’s gold market and gold consumption has increased, its official gold reserve has also drawn attention. Figures show that the gold reserve of the central bank remains steady at about 19.29 million oz. Soaring gold prices seem to have had no effect on the bank’s investment strategy.

With the founding of the China Investment Corporation (CIC) in October of 2007, rumors among industry insiders suggested that the CIC should invest in gold. Yet nothing of the sort has happened, and the CIC does not seem to have put gold on its investment list.

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http://www.chinastakes.com/story.aspx?id=218

Alex’s Notes: Many analysts are saying that commodities are ‘topping’ but I dont think so. If you take into consideration that commodities demand has been driven by the USA for over 50 years, then consider the differences in population, the ratio of commodity demand as Chinese consumers with disposable income coming online is quite huge.

Think of it like this:

USA – 175 million Consumers
China -1.2 billion Consumers

By that simple ratio alone we could see demand 6.85 times as high as what happened with the US economic rise.

———————————————-

By STEVENSON JACOBS – 17 hours ago

NEW YORK (AP) — Soybean futures continued their upward climb Friday, hitting a new record as investors bet that dwindling stockpiles coupled with growing demand in China will keep prices high. Wheat also rose.

Other commodities traded mostly higher, with heating oil futures rising amid a snowstorm in the Northeast and silver reaching its highest level since 1980.

Soybean prices have surged more than 15 percent this year, driven higher by poor harvests around the globe and growing Chinese demand for the beans used to feed people and livestock. Last week, China announced that bad winter storms had severely damaged 40 percent of the country’s rapeseed crop, increasing expectations that the country will boost buying of soybeans to make up the shortfall.

“You’ve seen a lot of headlines about China’s needs lately and that’s having an impact. They’ve got a growing demand for edible oils with their growing population and the Olympics coming up,” said Elaine Kub, grains analyst with DTN.

Soybeans for May delivery jumped 13.5 cents to settle at $14.3825 a bushel on the Chicago Board of Trade, after earlier rising to an all-time high of $14.40 a bushel.

Soybean prices shot up nearly 80 percent last year and are poised for another stellar performance in 2008. U.S. exporters have already sold more than three-quarters of the soybeans the Agriculture Department predicts for the whole marketing year, which ends in June. Although current supplies appear ample, analysts say the market is headed into a downward trend and that farmers need to plant more soybeans than last year — when an ethanol boom led farmers to favor planting corn acres over soybeans.

“There’s no reason to believe prices will fall significantly unless Brazil and Argentina come up with significantly more (soybean) production than expected,” Kub said.

Other agriculture futures traded mixed. Wheat for May delivery gained 19 cents to settle at $10.645 a bushel on the CBOT, while March corn fell 2.25 cents to settle at $5.2225 a bushel.

In energy markets, heating oil futures advanced Friday, driven up by the snowstorm blanketing the Northeast. Heating oil for March delivery jumped 2.49 cents to settle at $2.763 a gallon, after earlier rising to a contract-high of $2.7860 a gallon.

Other energy futures traded mixed. Light, sweet crude for April delivery rose 58 cents to settle at $98.81 a barrel on the Nymex on concerns about potential supply disruptions and cold weather. Meanwhile, March gasoline futures rose 1.17 cents to settle at $2.5337 a gallon.

In precious metals, gold for April delivery fell $1.40 to settle at $947.80 an ounce on the Nymex.

Other metals traded mixed. March silver surged to a 28-year high of $18.195 an ounce before easing back to settle at $18.035, still up 8.5 cents. March copper fell 2.10 cents to settle at $3.7895 a pound.

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Alex’s Notes: This is an ongoing in issue in every major country around the world right now. The only way to stop inflation is to stop printing money.

————————————-

Yesterday the China Daily published an interesting editorial on inflation that may indicate what the concerns are among at least part of the leadership. Here it is in total: Early reports of shocking price hikes in areas hardest-hit by the bitter snowstorms might have made it relatively easy for the public to swallow a 7.1-percent consumer inflation in January. Given the severity of the supply shock caused by the worst snowy weather in at least half a century, a short-term acceleration of inflation at this level, though the highest in a decade, is still an acceptable result of the Chinese government’s efforts to curb overall price rises.

Had the authorities not tried hard to increase food supplies and introduced stopgap price controls on a number of daily necessities before the snowstorms, the consumer prices may have gone through the roof. On back of a 6.5-percent headline inflation in December, it took a lot of endeavors to limit growth of the consumer price index to 7.1 percent in January when both snowstorms and the coming Chinese New Year were significantly pushing food prices up.

However, while they can breathe a sigh of relief for managing to cope with short-term inflation factors, policymakers should not stop fixing their eyes on long-term inflation. Aggressive price measures that the authorities have adopted will continue to take effect and thus slow price hikes in the near future. But the country’s inflation outlook may worsen in the long run if the structural imbalance in the economy cannot be properly and promptly addressed.

The acceleration in inflation has so far been predominantly driven by food. But that does not mean the current round of inflation will be short lived if the supply of food can be raised. While food prices surged by 18.2 percent year-on-year, non-food price inflation remained low at 1.5 percent in January. The slow rise in non-food prices is rather a source of increasing inflationary pressure than a reassuring check on further inflation.

The surge in producer prices which jumped 6.1 percent in January, the fastest growth in more than three years, indicates that rising energy and food costs are considerably pushing up manufacturing costs. Besides, the enforcement of higher environmental and labor standards will add to companies’ costs. Hence, non-food price inflation is already in the pipeline. The complexity of China’s growth prospects this year makes it very difficult for policymakers to fight an all-out war against inflation. A tightening monetary policy is essential to preventing serious inflation. But it may also risk slowing the growth of the Chinese economy by too much as a US slowdown or recession weighs increasingly heavily on the country’s export sector.

The policymakers should certainly be forward-looking and prepare for the possible downturn. Yet, an inflation rate above 7 percent currently warrants more concerns over entrenched inflationary pressures than worries about a temporary farewell to double-digit economic growth.

I think there are at least two very interesting points about this article (besides the fulsome but perfunctory praise about how well the authorities have handled the inflation problem so far). First, the author seems less than confident that inflation is merely a short-term food problem. Clearly he is worried that the inflation genie has already been let out of the bottle and that inflation is spreading to other parts of the economy.

Second, he acknowledges the complexity of the economic issues surrounding financial policy-making, but he says emphatically that “the country’s inflation outlook may worsen in the long run if the structural imbalance in the economy cannot be properly and promptly addressed.” As I understand it, “structural imbalance” almost always means the currency regime and the associated monetary consequences. I am not sure what “properly and promptly” mean, but interest rates have been rising, reserve requirements have been rising, and the currency is appreciating more quickly. Either he means something else must be done, and soon, or he is arguing that the recent hints of a policy reversal (actually a lot more than just hints) are ill-considered and Chinese policy-makers must go back to the grim spirit of the October Economic Conference.

Either way I read this as suggesting that the internal policy debate is fierce and far from resolved.

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http://seekingalpha.com/article/65459-china-s-inflation-debate-fierce-and-unresolved?source=d_email

China Gold Demand Now Second Largest in the World
Monday, February 18, 2008

In 2007 China surpassed the USA to become the second biggest retail gold market in the world after India. Total consumer demand in China’s mainland, Hong Kong and Taiwan reached 363.3 tons, an increase of 23.5 percent from 2006, the World Gold Council indicated in a research report.

To put that figure into perspective 363.3 tons, is equal to 10,596,250 troy ounces of gold, at today’s gold price of approximately $900 US that is $9,536,625,000 US Dollars worth of gold.

Mainland China gold demand, including gold jewelry and retail gold investment, reached 326 tons, an increase of 26 percent from 2006. This is the first time it has surpassed the 300 ton level. The gold jewelry demand in mainland China reached 302 tons in 2007, a year on year growth of 23.5 percent. Gold Jewelry and other ornaments have always been a form of savings in China since time immemorial.

India which has the world’s largest gold demand had a gold demand of 773.6 tons in 2007, while the US now in third place had a gold demand of 278.1 tons.

“Encouraging civilian reserves of gold has strategic significance and economic value,” said a director of the Peoples Bank of China’s (China’s Central Bank) official news vehicle back in 1998 when gold was around $300US. Can you imagine the US Federal Reserve Bank giving such a recommendation and what it would do to the gold price?

The article went on to say “If there are problems with the U.S. dollar, there will be an international catastrophe.” “Reducing reliance on the dollar, and maintaining greater diversification in foreign exchange reserves is the only way to reduce the risk,” it said. “As a result, an increase in our country’s gold reserves is necessary.”

It looks like the Chinese people have been taking notice of the advice from their central bank to buy gold. China’s mainland gold demand rose 18% percent from 2006 level to 94.3 tons during the 4th quarter. This was when the gold price rocketed from the breakout area of of around $730US to around $900US.

Consider this, the U.S. possesses 262 million ounces of gold for its nearly equal population. Were China to achieve the same financial gold backing, it would require 1.2 billion ounces of gold. The same amount of ounces of gold owned by all the world’s central banks and more than ten years of global gold mining production. However, China is now the worlds largest gold producer, surpassing South Africa in 2007.

China’s Gold demand is likely to continue to increase and put significant upward pressure on gold prices for many years to come, particularly if the US Dollar continues to decline in purchasing power as many analysts are predicting it will do.

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http://goldprice.org/gold-news/2008/02/china-gold-demand-now-second-largest-in.html