Huge gold buying from China.

"As at 31 October 2010, the US has approximately 8,134 metric ton of gold reserve while China has only 1,054 metric ton of gold reserve."

Gold's record rally has been attributed to everything from worries about inflation, the dollar and the emergence of exchange-traded funds. One big factor many may have missed: huge buying from China.

Data cited Thursday by China's state-run Xinhua news agency showed that China imported 209.7 metric tons of gold in the first 10 months of the year, a fivefold increase compared with the same period last year.

That surpassed purchases made by ETFs and surprised analysts, who until now had no clear insight into the size of China's buying.

Gold demand in general has soared globally this year, as a result of the sovereign-debt crisis in Europe and the Federal Reserve's new round of bond buying. Gold prices were pushed up to an all-time high of $1,409.80 a troy ounce on Nov. 9. Thursday, gold settled $1.20 higher, or 0.1%, to $1,388.50, up 27% for the year.

"Everybody in the gold market knew there was a surge in investment demand, but they didn't know it was China," said Jeff Christian, managing director at CPM Group.

China's import growth is a reminder of the country's huge but nascent purchasing power.

It comes as the government loosens its restrictions on gold purchases by financial institutions and individual investors. In August, the country began allowing more banks to import and export gold, opening up the gold market to the institutions and their clients.

Then this week, the Chinese securities regulator approved the country's first gold fund designed to invest in overseas-listed gold ETFs, a move analysts interpreted as another bullish sign for gold.

"The big picture is that China is continuing to relax the rules governing the domestic gold market," said Martin Murenbeeld, chief economist of DundeeWealth Inc., which oversees $69.9 billion in assets. "What we are seeing is the latent demand that has been there all the time and now can be exercised in the market because now the market is freed."

The World Gold Council estimates that China's gold demand could double in 10 years as more investors there embrace precious metals.

Until several years ago, China's gold market was strictly controlled by the central bank, which bought all the gold mined domestically. It then sold the metal to jewelry makers. The country, which is now the largest gold producer, remained largely self-sufficient in gold, with imports at a meager 31 metric tons in 2009, according to GFMS Ltd.

This year, fears of inflation have driven many Chinese investors to include gold in their portfolios as a store of value. At the Shanghai Gold Exchange, trading volume increased 43%, to 5,014.5 tons, in the first 10 months of 2010, exchange Chairman Shen Xiangrong said, according to Xinhua.

At a speech at the China Gold and Precious Metals Summit in Shanghai Thursday, Mr. Shen detailed the size of China's imports this year, Xinhua said. Those purchases were big enough to absorb all the gold that the International Monetary Fund had shed during that time period, which stood at 148.6 tons. It also dwarfed the SPDR Gold Shares, the world's largest gold-backed ETF, which added 159.48 tons of gold into its holdings in the same period.

China also is home to a booming gold-mining industry that keeps it as the world's largest gold producer. Wednesday, China's Ministry of Industry and Information Technology said the nation's gold production reached 277.017 metric tons in the January-to-October period, up 8.8% from the same period last year.

China's 2010 gold production is expected at about 350 metric tons, according to Standard Bank head of commodity strategy Walter de Wet.

"We note that there is likely to be illegal gold exports and imports from and to China," Mr. de Wet said in a note to clients. "This would distort the actual gold numbers for China. However, the trend is undeniable, gold demand in China is rising rapidly."

In other commodities markets:

CRUDE OIL: Prices settled at a two-year high Thursday, with oil for January delivery rising $1.25, or 1.4%, to $88 a barrel on the New York Mercantile Exchange, as economic data in the U.S. and actions in the euro zone to support debt markets lifted hopes for oil demand. Improving economic conditions in the U.S., the world's largest oil consumer, are vital to continuing the drawdown in global supplies that piled up during the recession. Tightening supplies could help clear the way for oil prices to hit $100 a barrel next year.

Source

Gold is just another Ponzi Scheme

If you think gold could buy you a good inflation hedge, you could be making a big mistake here. Just imagine living in a hyperinflationary environment, how much food you could buy with your gold bar? I think you could probably buy more food if you have something people would like to exchange for? I think it will be more sensible to invest your money in things such as a garden where you could grow your own vegetables and fruits, solar panel, rain collection/water filtration technology and other things people need to stay alive when the entire monetary system collapses.

Gold bubble will eventually burst. It is a matter of time. People are just buying gold for the sake of buying due to the inflationary concern. With the gold marketing gimmick, it further exagerates the true value of gold.


Is gold tracked by exchanged-traded funds such as SPDR Gold Shares(GLD) reaching new highs because of the fear of a double dip? Is it because of quantitative easing? Is it because of the fear of euro collapse? Is it because of the first dip? Is it because of expectations for future inflation? Is the current price movement being fueled by investor speculation or has there truly been a fundamental change in society that can explain the spike?

Let's uncover the real story behind the gold bubble.

There have been four groups who have participated in this run-up:

* Group 1 (November 2007 - April 2009): Hedge funds who were worried the global financial system would crumble as a result of the mark-to-market banking regulatory requirements.
* Group 2 (October 2009 - April 2010): Hedge funds who were worried that unprecedented stimulus would result in hyperinflation as global economies recovered.
* Group 3 (May 2010 - July 2010): Hedge funds who were worried that the eurozone would collapse, thereby causing currency chaos.
* Group 4 (August 2010 - ???): Individual investors who are now buying gold for the first time because they want in on the action.

Before the financial crisis, in January 2007, gold was priced at $650/ounce. The average price of gold had fluctuated between $300 and $500 during the 10 years before. Assuming 5% inflation in the past 10 years, the inflation adjusted gold price as at today is only around $800 plus dollar.

As the financial crisis unfolded, gold served as the ultimate investment vehicle to profit from fear because of its unique characteristics. It isn't valued on fundamentals, it generates no earnings, it pays no interest, it is essentially a perpetual zero-coupon bond that is easy to manipulate into a snowball effect.

This ambiguity made the asset a prime profit-generating allocation during times of uncertainty. Unfortunately for current gold investors, fear/panic is diminishing by the day. Without that essential element, the big money will exit the trade. September's strong stock market performance was the beginning of a new stage -- a stage that I refer to as a "sigh of relief."

Investors have endured panic for three years, and gold has rightfully gone up. Now that the cataclysmic panic is subsiding those left carrying gold in their portfolios are trying to come up with reasons to justify the holding. Quantitative easing is a tough sell. Slow growth isn't enough. The time looks ripe for the investment vehicle of fear to break down. Perhaps, we need to have a war to justify a further rally in gold.

Gold at $1,400 an ounce is eerily similar to oil at $140. Remember all the credible firms extrapolating the speculative action into $200 oil forecasts. Those same bubble-builders are now calling for $2,000-an-ounce gold.

Geroge Soros has highlighted the danger of gold bubble recently. We might not be able to tell what his real agenda is. He might be telling the market one thing and doing the reverse in his own book. This is not uncommon for the big boys to do such things in the market. However, Soros Fund Management LLC sold 547,689 SPDR Gold shares as of Sept. 30, according to a filing with the U.S. Securities and Exchange Commission. The disposal represented 10 percent of Soros’s holding in SPDR Gold, according to Bloomberg calculations, and follows sales in the first two quarters. Still, SPDR Gold remains the Soros Fund’s largest single equity holding. This could be a real early warning sign.

Soros said that gold’s rally may continue, Reuters reported in September, citing an interview. “I called gold the ultimate bubble which means it may go higher but it’s certainly not safe and it’s not going to last forever,” Soros was cited as saying.

Fasten your seat belt!

*some of the inputs are taken from "thestreet.com"