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XMFSinchiruna (27.97)

China Strikes at the Heart of Gold

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June 24, 2010 – Comments (10) | RELATED TICKERS: CDE , GDXJ , CEF

Coeur d'Alene Mines' landmark deal to export 1/2 of the life-of-mine gold production at Kensington to China's primary (and state-owned) gold producer marks a significant signal of China's growth in gold demand continuing to outpace its ability to source adequate supply doestically (DESPITE REMAINING THE WORLD'S LARGEST PRODUCER SINCE 2007!!!!!!!!!).

China Strikes at the Heart of Gold

http://www.fool.com/investing/small-cap/2010/06/24/china-strikes-at-the-heart-of-gold.aspx

China recently surpassed India as the world's largest market for gold jewelry, and The World Gold Council now expects consolidated Chinese gold demand to DOUBLE from recent levels over the next ten years!

This is a sweet boon for Coeur d'Alene, which is well positioned geographically to offload Kensington's concentrate to China. More importantly, much like the morphing structure of the coal markets that I have documented over the last several months that portends a sustained, generational bull market in the works, this contract is indicative of (or at least continues to telegraph) a similar structural / geographical shift in the global market for gold. Couple this with Shanghai's rise as a key spot-market hub, and Hong Kong's repatriation of bullion formerly stored in London, and you have all the evidence in place to declare Asia as a new global hub for precious metals to easily rival New York and London. Once those latter cities' exchanges are caught with their pants down mired in worthless leveraged paper gold and uncoverable naked shorts, Asia will then become the de facto center of the gold and silver world.

Economic wars are waged in part through currencies, and with Europe and the U.S. betting the farm on the world playing along cooperatively with reflationary printing to combat limitless mounds of toxic debt, China and its pan-Asian kin may face an irresistable opportunity to employ gold and silver as salvos in their bid to reinforce the ongoing decline of Western economic hegemony. The global balance of power continues to march in a state of flux due to the financial crisis, but I caution Fools against underestimating the extent to which China and surrounding nations will seek to position themselves by whatever means at their disposal to fill the resulting vacuum.

The structural supply deficit in China's rapidly expanding gold market clears the way for at least $1,500 gold on that one driver alone, and ultimately the resulting strain on global supply may well be what triggers the mother of all margin calls on the leveraged LBMA or the naked-shorted COMEX. If either of those exchanges are forced into default, then my long-held $2,000 price target will be rendered woefully understated.

Long and Strong Silver and Gold,

Sinch

10 Comments – Post Your Own

#1) On June 24, 2010 at 6:40 PM, chk999 (99.98) wrote:

Which one do you like better right now, HL or SLW?

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#2) On June 24, 2010 at 6:41 PM, XMFSinchiruna (27.97) wrote:

chk999

SLW ... by a mile. It's all about the business model.

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#3) On June 24, 2010 at 11:49 PM, rwebankrupt (78.46) wrote:

Which one do you like better right now slw or slw warrants?

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#4) On June 25, 2010 at 10:29 AM, outoffocus (23.59) wrote:

Sinchy,

I saw this announcement the other day and was wondering what you felt about it. Glad you posted this. I think CDE is terribly undervalued right now so it'll be interesting to see the price action over the next couple months.

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#5) On June 25, 2010 at 10:50 AM, XMFSinchiruna (27.97) wrote:

outoffocus

It's a handy development for CDE, but I don't want to overstate the significance of the deal to CDE ... there's no shortage of eager buyers of gold concentrate closer to home either.

I agree that CDE is grossly undervalued, but it's the start-up of the Kensington mine more than the supply contract that will likely boost the shares.

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#6) On June 25, 2010 at 1:04 PM, uclayoda87 (29.51) wrote:

The real World Cup:  China vs. Saudi

Peter Schiff to the Saudies Buy Gold Mines!!!!!!!!!!!!!

 

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#7) On June 25, 2010 at 2:32 PM, chk999 (99.98) wrote:

Thanks Sinchy, I think I owe you a beer.

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#8) On June 25, 2010 at 3:01 PM, outoffocus (23.59) wrote:

I'm still kinda confused about the price action in gold and silver equity shares.  They are practically "leveraged bets" on the price of gold and silver yet they dont seem to reacting in proportion to gold (and silver's) rise lately.  Any explanation?

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#9) On June 25, 2010 at 4:33 PM, DarthMaul09 (29.89) wrote:

China appears quite good at manipulating the world press, and in spite of its obvious commodity acquisitions the world is led to believe that PM and commodities are really not that valuable.  Unless China is done with its hording activities (which it's not), I would expect that China's PMM (price manipulation ministry) will issue news reports that will deflate the recent PM rise, which will keep its buying costs low.  Binve posted a blog a while back, which I think best sums up China's strategy, but the eventual timing for the take over will be delayed until they have everything in place.  And they have been known to be patient.

Gold - China's End Game? Report this comment
#10) On June 28, 2010 at 7:56 AM, XMFSinchiruna (27.97) wrote:

chk999

Sinchi is always thirsty, and would very much enjoy meeting some of his fellow Fools. Anyone living in or traveling to New England is encouraged to drop me an e-mail.

outoffocus

The mining shares have been lagging bullion for years, and that's a good thing. There is (still) very little expertise in the sector, and very little awareness of what these shares are really worth. That's a good thing, as it guarantees an explosive rebalancing between the two, and provides an incredible moat of downside protection in mining equities during the next broader market selloff.

I am, at this stage, increaing my proportion of mining equities relative to my to bullion exposure.

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