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December 8, 2003

December 8, 2003

SOME POINTS ON GOLD

There was a very important article in the China Daily Hong Kong edition on September 9, 2003 that my friend Larry Jeddeloh of The Institutional Strategist informed me about. It is a long article and hard to fully duplicate here so please let me summarize some main points.

Prominent gold experts and officials are urging the government to lift the ban on individual trading as soon as possible. 20% of respondents in a recent national survey said that they were willing to spend 10 to 30 per cent of their savings in gold investment. Xi Jianhua Bank of China’s gold business expert estimated that a possible injection of as much as 300 billion yuan (US$36.15 billion) in private money could flow into the gold market. Purchases of foreign gold would boost national import volume and ease pressures on the appreciation of the yuan, while slashing the foreign trade surplus. Per capita annual gold consumption in China is only 2/10ths of a gram per annum. In India it is 1 gram and the United Arab emirates the worlds highest is 30 grams per annum. China is the largest potential jewelry market in the world.

My conclusion: China is a major market which is just developing and will provide a large amount of consumption. This consumption will be much larger than any increased selling generated by small mining companies selling gold forward (hedging or leasing) in order to develop new mines. A few small companies plan to implement this strategy. However, major companies have realized that the hedging strategy is flawed and have either reduced hedges or stated that they would not hedge in the future.

If you are interested in more information on the gold market, check out Jim Sinclair’s brilliant web site, www.jsmineset.com . He has many excellent articles and columns on precious metals and the state of the financial markets. A couple of recent articles I found particularly interesting were “The Paper Chase” on December 8th and “The Trojan Horse Alert” on the 7th.