Why is China hell bent on buying Gold?

Thomas Fuller once said that it is much better to have your gold in the hand than in the heart. It seems Chinese Government has taken inspiration from this quote. Chinese rulers are heavily into piling up their gold stock to back their currency Yuan. China has come long since it had opened doors for foreign investment. Now China wants that their currency to be in leading currencies in the world. After overtaking Japan as second largest economy in the world now ambitious Chinese have set their eyes on U.S. dollar, the current strongest currency in the world. China has taken major steps to promote the Yuan as a trade and investmChina Gold Investmentent currency. Converting rigid Yuan in open currency is part of their ploy to overtake world markets by their currency. China’s new gold related investment is mirror of their Yuan policy. China is a largest producer of gold. China is on mission to expand the wings by internationalizing its gold market. Communist Politburo has allowed to more foreign bullion, more import and export and bigger transactions in Chinese market.

Not so old story when Chinese Yuan was not considered a good equalizer in trade. But then People’s bank of China entered in the picture to take control of situation. Their ambition is to in be the same line of Euro and Dollar. People’s Bank of China is currently owned 1,054.1 tonnes of gold compared to European Central Banks (all 17 countries) 10,401.3 tonnes and U.S. Federal Reserve’s 8,133.5 tonnes. It’s evident from the numbers that China is too far behind than other major world players.

China is taking every measure to ensure that they will not lag behind any more. In order to attain this goal China has stopped all gold bullion export from the country. China has sent a strong signal to other nations. No more golf from China will goes to the outside world. The net production of 350 tonnes gold will goes in the people’s Bank of China vault directly now. Its good news for the people who are in daily gold stock picking.

How to Invest in Gold

China’s bid to be in the same league of dollar and euro is not easy one. Iron curtains around China are one major problem. Chinese systems and government policies are not up to the mark if compare to other major nations. Absence of free media and non existent freedom of expression is worsening the Chinese bid to attempt supremacy.

Chinese doesn’t believe in depending only one measure to attain their goal. They have not only stopped the export the gold measure only but also they are hell bent on buying gold in international market. Of the overall approx. 3000 tonnes of gold bullion supplied to the world in 2011, it is estimated that China is on the look out for most of the gold, to back their Currency.  In 2009, China bought four tonnes of gold bullion from Hong Kong. In 2011, China imported 46 tonnes of gold bullion from the other exporters of gold. China has always have many tricks in their sleeves to surprise the rest of the world for sure.

China’s geo political ambitions in Asia –Pacific region are not the best kept secret. Strengthening the Yuan is very important in order to attain their aim. That why China is very serious on this front. According to reputed gold investment newsletters, China’s holy mission to get more and more gold is good news for the investor world wide that are willing to buy gold stocks.

China’s move to buy more and more gold will increase rates of gold stocks in the global market. It’s good opportunity for gold investors to earn some profit. Now they know if they want to sell gold stocks where they have to look out.

The Gold Stock at the Top of My List

After the tech bubble in March 2000 popped and before the recent financial and credit crises struck, at least three sectors have managed to post significant gains: bonds; real estate; and small-caps. For some reason, however, gold remained under the radar for most investors. Yet, since the stock market peak, prices have climbed past many psychological marks. The shares of companies that mine the metal have gone for the ride.

The perennial question for any gold investor is whether to buy bullion or gold mining stocks. I favor gold stocks over the higher risk of other commodity options.

While generally favoring gold stocks, I view Newmont Mining Corporation (NYSE/NEM) in particular as a really good investment, because we see this stock bringing value to your portfolio for years to come.

Without a doubt, for those investors looking to hedge their portfolios with gold exposure, Newmont Mining deserves to be at the top of the list. This company stands out among other players for two reasons: 1) size; and 2) low production costs, even in the rising price environment.

Over the years, Newmont has grown rapidly through mergers and acquisitions, as well as the development of its existing reserves. This strategy resulted in the company’s diversified risks; namely, unlike junior producers, Newmont doesn’t depend on one or two of its mines for its future and it is certainly not exposed to politically unstable regions.

In that regard, the risk is spread out, as the company continues to maintain an aggressive worldwide exploration program and is actively participating in and taking advantage of the ongoing industry consolidations.

In terms of costs, Newmont enjoys an overall favorable cost structure, although the recent quarter painted a very bleak picture when it came to capital expenditures. Its South American operations are the major factor in keeping the company’s costs down. This is particularly true with the Yanacocha property in Peru, where cash costs are in the lowest per-ounce price range.

The company’s diversified portfolio of low-cost mines allows it to remain profitable, even during prolonged weakness in the gold bullion market. In the past 10 years, Newmont has posted net losses three times; yet each year it has generated positive operating cash flows.

Over the past five years, Newmont’s investment rate has been around 60% (the investment rate is the percentage of profits the company has returned back to its business operations).

This strategy is consistent with what most producers do; return every dollar earned, and then some, back into the operations. However, with Newmont, it seems to come with ease, adding further to its attractiveness, as it can grow even during periods of depressed gold prices and at a lower investment rate.

Newmont’s cash flows are highly sensitive to the price of gold, because the company remains largely unhedged, thus exposing itself to the whims of the gold market. However, market data and the current economic environment suggest that the gold market is dancing with the bulls, so the company’s unhedged strategy promises profits, as the price of gold rises further.

This is the stock that saw its market price go up double percentage points over the past three years and its sales double every three years. The company is growing aggressively—both internally and by acquisitions—and has sufficient cash in the bank to finance that growth.

Newmont Mining appears to be the perfect choice for investors looking for a company with excellent fundamentals, a proven track record, and experienced and knowledgeable management. Note that this is not a recommendation necessarily to buy the stock right now, but you should definitely take a look at it.

Newmont is a leader in gold. In technology, a company that has fallen on hard times, but that I feel is set for fresh growth is Microsoft, which you can read about in Microsoft May Be Set for Prime Time.

Oil & Gold-Two Great Commodities

Oil & Gold—Two Great Commodities Whose Prices Reflect the Fear in
Financial Markets

By Mitchell Clark, B.Comm.

The only trading action that seems to be working for long investors is in gold stocks these days. This isn’t a surprise, nor is it unexpected with the spot price of gold so high. Two more junior gold producers, AuRico Gold (NYSE/AUQ) and Northgate Minerals (AMEX/NXG), announced a deal to merge. The two juniors hope to create a new intermediate gold player and the expectation for production growth as a combined company is significant.

In this particular case, AuRico Gold is doing the buying. The company’s share price (which has almost doubled since the beginning of the year) appreciated swiftly to a recent 52-week high of $14.17 per share. Then the company announced the all-share deal to acquire Northgate. It’s a trend that we’re going to see more of over the coming quarters. With share prices lofty and bank accounts full, everyone in the gold mining business wants to bulk up before the party’s over.

The broader stock market’s trading action reflects the overall sentiment in the economy. Add in the fact that the month of September is often not a good one for stocks, and one could easily predict that the next several weeks are going to be difficult. The stock market isn’t expensively priced, but that doesn’t mean that it will be anytime soon. There’s a mini cycle going on in the stock market and it’s all about the revision of expectations for the future. Expected returns from stocks are going down big-time, as current economic data sink in. No doubt the stock market needs a major catalyst in order for it to advance. It’s unclear at this time what that catalyst will be. As is usually the case, the market will need a combination of factors to come together if it’s going to move higher in any sustainable fashion.

The S&P 500 Index did an impressive job of recovering from the 1,120 level. It clawed its way back to 1,200 and is now trying to balance itself out with the fears in the marketplace. The next major move could be anything. What’s likely in my view is that the trading action will very difficult until we get into third-quarter earnings. Any earnings warnings from corporations in this market will not be well received. The same goes for any changes in fourth-quarter visibility come reporting time. Everything now has a fragility to it—the economy, financial markets, and expectations for the future. The only exception is the market for gold; investors still view this specific asset as a haven, even though the spot price has already gone up dramatically.

The best near-term indicator for share prices continues to be the spot price of oil. A weaker oil price is exactly what the economy needs, but it also serves to illustrate declining sentiment about the future. Stocks won’t advance until the economic news shows some major improvement.