Coals to Newcastle: Gold to China?

China is the world's largest producer of gold, but the middle kingdom actually imports considerably more than it produces! The appetite for gold in China appears to be enormous, and growing rapidly.

China is easily the world’s largest consumer of the metal, but we often forget they are also the world’s largest producer. For the year 2010, it produced 345 tonnes. Its output has increased by 62% since 2001 and it routinely breaks its own records for annual gold production. _Goldmoney via ob-research

Image Source

China, already the world No. 1 gold producer, saw its output rise again this year. The country produced a record 360.96 tonnes of the yellow metal in 2011, a 5.9% increase, making it the world's top gold producer for a fifth consecutive year, according to the China Gold Association.

Meanwhile, the country has been importing record amounts of gold as well with the volumes coming in through Hong Kong, which are officially reported figures, climbing to over 100 tonnes in November - and by all accounts gold purchasing in China has been booming since then, so imports are likely to have remained at this kind of level in December and January as well. Estimates have suggested that China's total gold imports for 2011 will have been some 490 tonnes - double that of 2010, but this may well be an under-estimate, possibly a substantial one. _Mineweb

Image SourceBut -- just as with everything in China -- there is a lot more going on below the surface, which is not officially reported.

China's domestic gold mine output is, without a doubt, much higher than reported. Actual gold mine output could easily be close to 400 tons and possibly more for the following reasons:

The China Gold Association (CGA) numbers reflect production by their members only -- but omit gold mined by non-members. These include many small, unofficial mining operations some of which are illegal existing in the "underground economy". The CGA data also excludes production from mines owned and operated by the military, which is significant according to sources. Not to be overlooked is by-product output from copper, silver, and other metal mining activity. Again, this is significant though hard to know just how significant.

In addition to mine output, analysts and commentators seem to forget about secondary supply -- that is from recycling of jewelry, investment bars, and industrial scrap. Just to get an "order-of-magnitude" possibility, in recent years global secondary supply from scrap recycling has contributed roughly one-third of total worldwide supply. If scrap contributed only five or ten percent of China's total gold supply it would still be quite important.

Next, Western analysts are estimating that China's total gold imports last year were around 490 tons -- but no one talks about "illegal" imports -- that is gold smuggled into China. We know smuggling is quite significant in some countries -- Vietnam and India, for example. We can only imagine how many tons of gold in the form of tael bars, wafers, coins, investment-grade jewelry, etc. is carried into China each year by travellers and professional smugglers.

_Mineweb

Beijing is gearing up for this October's 18th Party Congress, the beginning of big changes at the top of China's party and governmental structure. Such changes in government are usually a cue for capital flight from the celestial kingdom. Given the prohibitions against moving cash out of China, gold is becoming an important means of moving capital overseas.

Legitimate imports of gold into China amount to hundreds of tonnes. But illegitimate imports -- gold smuggling into China -- is likely to reach significant amounts as well. (more)

Other nations experience serious levels of capital flight include Russia, Syria, Mexico, Argentina, India, Venezuela, Iran, and a large assortment of third world dictatorships and quasi-dictatorships.

India imports even more gold than China -- at least officially. And gold smuggling is alive and well in South Asia, as in East and Southeast Asia.

Demand for gold is quite high, globally, for a number of reasons -- not least of which are Europe's twin disaster of debt and demographic decline, nor Obama's ongoing war against the US' private sector and energy producers.

This information should tell you something about popular global sentiment toward the current crop of national and international leaders. Trends are likely to continue until something remarkable occurs to change them.

A word of caution: Don't get caught up in the oil hoopla! Oil is not gold, nor is oil a reliable store of value. That is because oil can be substituted in many ways. (much more on this at Al Fin Energy) Gold has no such substitutes.

Useful Primers on Fiat Money and Banking

Our lives are controlled to a large extent by the rules of the fiat money world that we are immersed within. It is better that we understand these rules so that we can anticipate and plan for at least some of the turbulence that may come our way.

h/t Mish's Global Economic Analysis

Banking and Money from KhanAcademy.org


Ron Paul's view of the US' monetary conundrum.

Gold as Money FAQs from the Mises Institute

Wikipedia: History of Money

Description of "History of Money" by Glyn Davies. This is one of the most highly regarded histories of money available.

Video (and transcript): Chris Martenson Crash Course Chap. 7 -- Money Creation
Note: Later in his crash course, Martenson falls unwittingly into the twin traps of "peak oil" and "climate hysteria," but his chapters on money present some key concepts in useful ways.

Al Fin economists and child care specialists feel that it is a crime that all children are not educated in money, exchange, and markets from the earliest age. Trading and entrepreneurialism should be second nature to all children raised in a free society. Each citizen should have a sound intuitive sense of money, and keep abreast of the actions of elected representatives which may influence the value of money and the freedom of trade and markets.

Most citizens appear to be almost entirely ignorant on these points. A bitter price will be paid for this ignorance.

InfoGraphic: All About Gold -- Past and Present

 Once again, the world's ultra-rich are stocking up on gold.  Do they know something that you do not?  Or did they become rich by falling for every scam that came along?   Regardless, if this goes on, how long will it take before the Obama reich steps in to put a stop to this anti-social trend?

From OneMint (via BusinessInsider) comes this data-packed chart that looks at gold's present, recent past, and ancient past.  You can find more information here or here.  Gold has been seen as "real money" by most civilisations from ancient times.   For a clearer, larger image, see here.

Paper money has no value in itself, but is instead a symbol (an IOU) of underlying wealth residing elsewhere. Gold is generally seen as real money.   If you have total faith in the central bank of your nation, forget about gold.  Otherwise. look at metallic wealth -- including gold, silver, copper, platinum, etc.

What about oil? Oil is being manipulated out the kazoo by the big money investment funds and firms. If the price of oil ever does rise -- AND STAY -- above $100 a barrel (1980 dollars) for a long period of time, substitutes for oil will pop out of the woodwork after their natural respective delays for development and scaling.

So no, oil is not the new gold. Even platinum is not the new gold, since catalytic substitutes for platinum -- as well as several promising ways of reducing the amount of platinum in catalytic units to tiny amounts -- are coming on fast.

Gold is not so much an investment, as it is a stable repository of wealth -- although a lot of people have done much better than the stock markets via gold investments recently.

If you had invested in gold when I first mentioned it, you would have done very well. If you scoffed, you lost. At this point, gold will only drop dramatically if Obama completely changes his approach to governing, loses his anti-market bigotry, and dumps his blood-sucking friends in public sector unions, the faux environmental movements, and abandons the radical left.

De Obama Dolla Goin' "Cheep Cheep Cheep!"

Gold has been surging of late, and yesterday it hit an all-time high of roughly $1,280/ounce. Supply/demand theory would likely say that demand for the yellow metal is outstripping supply, but this would be mistaken thinking.

Instead, gold is expensive right now because the dollar is cheap. _RCM

The price of gold has risen to record levels recently, in terms of the US dollar. But pricing things in terms of the US dollar can be deceiving if one does not correct for government-induced shrinkage.

Unique among commodities, nearly every ounce of gold ever mined is still with us today. In numerical terms, there are roughly 148,000 metric tons of gold on earth, and the supply of newly discovered gold each year usually works out to 2,000 metric tons.

The above-mentioned stock/flow disparity explains neatly why gold has been used as a money measure for thousands of years. Lacking any major industrial purposes that lead to its consumption like oil, gold discoveries are merely additive to the global stock, and with new, annual discoveries very small relative to the total supply, the price of gold is enormously stable in real terms.

To put it more simply, when the price of gold fluctuates it's a signal of dollar (the currency in which it's priced) instability, as opposed to a gyrating price of the metal itself. And with gold presently more expensive in dollars that it's ever been in history, the most monetary of all metals is signaling that the dollar is the weakest it's ever been.

The culprit for the dollar's decline is pretty basic. Despite the fact that the Federal Reserve issues dollars, it's the U.S. Treasury that is the dollar's mouthpiece, and just last week Treasury Secretary Tim Geithner signaled his and the Obama administration's preference for a weaker greenback. _RealClearMarkets

By similar logic, the current price of oil is not nearly as high as you might think, given the amazing, the shrinking, Obama dollar (it be cheep, mon!).

The cheap dollar is not the main cause of the dismal outlook for the US economy, but it doesn't help. As the hyper-leveraged, hyper-regulated US economy tries desperately to find a way out of its government-induced and bottomless recession (you don't believe those government numbers, do you?), the Obama Pelosi regime simply passes new legislation to shut any peepholes of economic sunshine that may remain.

Remember: no matter what the Fed decides on interest rates, US interest rates will be headed up. Otherwise, no one will buy US debt in the near to intermediate future. That would only leave the printing press to pump out the Obama dollas as payment for goods and services rendered. But remember: One trillion multiplied by zero still equals zero.

Burning Down the House

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Americans are living in amazing times. Living under what is nominally a "constitutional republic", they find themselves bumping into limitations and restrictions more likely to arise within a hereditary monarchy or a totalitarian state ruled by a party elite. What is going on?

Professor Anthony Codevilla is a student of government and international affairs who has become quite aware of this phenomenon. He goes so far as to paint a brief portrait of America's Ruling Class, and publish it! That struck me as an act of extreme courage for an academic, until I saw that Professor Codevilla was actually Professor Emeritus Codevilla. He is relatively safe from their vengeance, then, perhaps.

Few will be satisfied by such a brief and teasing look at America's new royalty. They will want a more detailed examination of this phenomenon, and what it may portend. Thomas Sowell in Intellectuals and Society, provides a well-fortified survey of these well connected, often behind-the-scenes lever pullers. According the Sowell, the thing that distinguishes ruling intellectuals from the subservient citizenry, is that intellectuals are not generally held accountable for being wrong. Think about that in the context of real tenure, and tenure that comes from being a "made" member of the group.

Paul Johnson in his Intellectuals, provides the necessary historical and brief philosophical introduction to this central phenomenon of modern public life. Reading the historical portraits of famous paradigm shifting intellectuals provides as many examples of Sowell's "distinction" as one might want.

To understand how a group of well-connected dunderheads could pull off something as audacious as Sowell and Codevilla suggest, take a look at media insider Bernard Goldberg's Arrogance. As I read the continuing saga of the Journolist insiders, I cannot help but recall the many incidents of similar collusion related in Goldberg's book.

Trying to pinpoint an exact date when Americans rolled over and accepted a ruling class of pompous but numbskulled intellectuals within government, media, academia, the judiciary, etc. is futile. From before the day the Declaration of Independence was signed, agents of the old world of authoritarianism were at work chipping away at the ideas that underlay the thinking of the American founders.

But undeniably, they hold the reins firmly in their grips for now. But as I may have mentioned, this ruling class is quite stupid, despite the broad areas that it controls. The seeds of its destruction -- the impending burning down of the royal house -- is inextricably contained within the stupidity of its policies. That, of course, is the fatal flaw for any intellectual. When they finally achieve absolute power and are forced to put their ideas into action. Without having had any experience contending with the unforgiving hand of reality before this point, the ruling class stands helpless before the cascading failures of its ill-founded ideas and prescriptions.

Blaming predecessors and stowaways from the old regime might work in holding off the angry victims-cum-arsonists for a brief time. But eventually, the inner nature of this ruling class will burst forth in the revealing flames of self-immolation.

All we have to do is to learn to take care of ourselves throughout what is going to happen next. The ruling class is going find the appeal of burning down the house themselves to be beyond their powers to resist.

Intellectuals are not meant to rule. They are critics and revolutionaries, not competent leaders. Which does not make the coming pain and hardship any easier to endure. But if you are the type who wants to understand why things have become ten times harder than they needed to be, take a good look at America's ruling class, and how they came to be.

Finding Yourself a Good Place to Hunker Down

The survival community has not been this stirred up since the days of the Jimmy Carter Malaise of the late 1970s. A lot more people are starting to think about storing a few months of food and water around the old homestead, in case of a temporary disruption in services. But others are going farther than that -- much farther.

For [Jerry] Erwin, the decline is irreversible and the best approach is to prepare for the inevitable.

His pessimism is shared by a wide range of people, from left-wing environmentalists who believe climate change and capitalist greed will doom human society to Christian fundamentalists who think sin will do the same.

They label themselves "preppers," "doomers," and "survivalists," and take a variety of different approaches to the same question: How best to prepare for the coming apocalypse?

...It is unclear how many people subscribe to the lifestyle, but there are hundreds of websites devoted to the movement, and Erwin's surburban-self-reliance.com attracts visitors from around the world.

The global financial crisis has increased interest in survivalism "bigtime," Erwin said, but he feels sorry for latecomers to the movement.

"We'll help them if we can," he said. "But a lot of people are climbing on board at the last minute and its going to be hard for them." _RawStory_via_SurvivalBlog

Some people will want to stay in their suburban homes, and brave whatever comes their way. If their home is a monolithic dome or of similarly durable construction, they may have a good chance to wait out whatever disruptions are short-circuiting the normal functioning of society.

A little extra insurance -- such as the type they could get from US Bunkers -- might also help. Backyard bunkers of various styles might provide enough of a fallback position to survive most disasters.

USBunkers

USBunkersBut if you want true survivability against large numbers of disasters, you will need to forsake the cities and the suburbs for the wildlands -- the deep wildlands.

UndergroundHomes

UnpluggedAbove you can see the living and working quarters for a nuclear missile silo. If you buy an abandoned silo, you should be able to convert it into a fairly comfortable and survivable retreat.

UnpluggedThis is an example of such a conversion, for the upper level working and living section. The silo itself provides much more space for creative re-design.

Of course if you cannot stand the idea of living in a converted missile silo, you can always design and build your survival bunker from the beginning.

VivosA California company, Vivos, is selling shares so that it can do just that. Above is a rendition of what the hub of the Vivos shelter is to look like. The upper level of the hub is for eating, recreation, social interaction, and entertainment. Lower levels include a hospital, dental clinic, and other necessary services for a long-term retreat from a failing society.

VivosThis image shows the hub attached to "spokes" of sleeping and working areas. Vivos sees itself as a "survival cruise ship" located underground.

Below is a video presentation of the Vivos concept.

More video coverage of Vivos

There are as many variations on the idea of "the perfect survival shelter" as there are survivalists and survivalist wannabe's. But in general, it is best not to announce to the world that you are holding wealth (gold, silver, etc), supplies, fuel, medicines, firearms and ammo, etc. in reserve, just in case society fails to hold together.

If you are living on a flood plain, you may need to build your survival bunker up on stilts. Otherwise, consider various types of concealment -- including going underground, or creative use of terrain and landscaping.

A large shelter such as Vivos is proposing, would house up to 4,000 people. Such a shelter might well require a small, modular nuclear fission reactor for power and heat / hot water. Smaller retreats and compounds might get along quite well with a combination of small wind, solar, biomass, and micro-hydro. Plan appropriately, according to the scale of your retreat.

More on this topic later.

Silver Is Likely to Multiply In Value Faster than Gold

Half of silver demand, or 435.1 million ounces, goes into industrial applications including electrical conductors, alloys, solar panels and batteries, according to GFMS Ltd., which compiles reports for The Silver Institute, a Washington-based industry group. That compares with 12 million ounces for gold, 3.85 million ounces for platinum and 6.19 million ounces for palladium. Industrial demand for silver will gain 14 percent in 2010, the most since at least 1988, Barclays estimates.

...Solar-panel installations may jump 44 percent this year to about 33 billion watts of capacity.....Crystalline silicon solar panels use as much as 0.12 gram of silver per watt of capacity. The metal accounts for about 35 percent of a silver- oxide battery and as much as 40 grams of silver are used in a 32-inch plasma TV screen, VM Group estimates. _BW

Silver has many more industrial uses than gold, but is also widely seen as valuable in itself -- as a form of wealth, or money. Silver's value at this time is historically rather low, compared to gold. If economic times turn difficult -- as they easily could at a time when the world hegemon is ruled by an unprecedentedly incompetent government -- silver's innate value as money would probably push its cost well past doubling, approaching a quadrupling.

Doubling as a store of value for buyers concerned about the economy and as an industrial material for those bullish on growth, silver is outperforming metals from copper to zinc this year and keeping pace with gold...."Silver is really attractive because you have strong investment demand and strong fabrication demand," said Jeffrey M. Christian, the managing director of CPM Group, a research company in New York...."You buy gold when you think the world is going to hell in a handbasket. You buy copper when the economy is booming. In between those two, if you're a bit confused, you buy silver."

The metal, used to create the first telegraph messages, rose 9.5 percent since the end of March, heading for a sixth quarterly advance. That's the best streak since 11 consecutive quarters through the beginning of 1980, a year after the Hunt brothers tried to corner the market.

While gold reached a record $1,265.30 an ounce on June 21, silver would have to more than double to get to the all-time high of $50.35 reached in New York in 1980. Silver rose 13 percent this year in London, gold added 14 percent and the London Metal Exchange Index of six industrial metals fell 9.2 percent. _SFGate

If paper currencies lose their value any more quickly than at present, a return to hard currencies is likely. If not in official markets, then in grey and black markets that are likely to spring up in ever more visible locations. Gold, silver, and copper would be used as money, but other things such as prescription drugs, common ammunition, and culinary substances such as salt and spices may all find themselves put to use as makeshift currencies. Barter is also likely to grow in popularity -- assuming a person has anything of value to trade.

....gold is rising due to the instability of the global financial system. Gold is money, and as the ultimate global currency and store of value, the yellow metal is regaining its place in history as a trusted reserve currency.

But throughout history, gold has not been the only monetary metal. Silver has always played a role alongside gold. In fact, up until the beginning of the 20th Century, more people used silver as money than they did gold. _GoldNews

It is a shame what governments have done to money, in their utter greed for dominance and power. People who are capable of thinking these things through will need to decide when to stop playing along.

In good times you want to grow your wealth. In bad times, the best that you can often do is just to hold on to it.

DJIA at 10,000 -- Make that 7537

In constant dollar terms, the DJIA managed to break 7,537. Time to celebrate -- if you own gold, that is. If you own stock or dollars, you've just been had.

Much more at ZeroHedge via Instapundit

Dollar, Dollar, Who Wants the Dollar?

Image via Dennis ManganObama Dollar falling in value worldwide__President Barack Obama’s effort to lead the world economic recovery by spending the U.S. out of its recession is undermining the dollar, triggering record commodities rallies as investors scour the globe for hard assets.

World banks running from Obama dollar__Central banks flush with record reserves are increasingly snubbing dollars in favor of euros and yen, further pressuring the greenback after its biggest two- quarter rout in almost two decades.

The Obama dollar gets political__The aftershocks of the global financial crisis may now be propelling the dollar back to the political forefront. The greenback’s continuing slide makes it a handy metric that neatly encapsulates America’s current economic troubles and possible long-term decline. House Republicans for instance, have been using the weaker dollar as a weapon in their attacks on the Bernanke-led Federal Reserve.

Jim Rogers predicts Obama Dollar to lose reserve status__Rogers' confidence gold will continue to rally stems from a view the U.S. dollar is on its way to losing status as the world's reserve currency.

"Is it going to happen? Yes," Rogers says. "I don't like saying it [and] I'm extremely worried about it but we have to deal with the facts. America is not getting better [and] the dollar is going to be replaced just like pound sterling [was]."

The Case for Buying Gold

As US unemployment worsens, the mortgage industry sets for another round of defaults, US government debt explodes, and the Obama / Pelosi agenda reaches its tentacles ever more deeply into a sick US economy, you may be wondering if there is such a thing as a safe haven for any surplus wealth you may possess.

Is Gold a Reasonable Investment? is an extensive look at the question. The article answers the question from multiple perspectives, and contains a generous variety of links to clarify each point. Also included are multiple helpful graphs and charts.

The value of the US dollar will continue to drop over time, as the US Federal Reserve and the Obama Administration continue to monetize US government debt. When inflation gains more traction, the fiat currency's loss of value will accelerate.

Al Fin believes that everyone who can should have both gold and silver in multiple forms: coin, bullion, and investment in precious metal enterprises.

More: If you believe the worst of the recession is behind us, perhaps a healthy dose of Financial Armageddon will lead you to re-consider.