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China & Gold

December 11, 2002

“Chinese like to make money,”

The above is a statement made by a fortune seeker from China who came to America to seek his millions. And Zan Ng achieved his dream after arriving in America with only “…$68 and the clothes on his back.” “he’s founded five companies… …has a $1 million stock portfolio and $5 million in real estate.” Lisa Cullen, Fortune Hunters, ASIAWEEK.COM

Arise, ye who refuse to be slaves;
Let us build our new Great Wall!
Arise! Arise! Arise!
Millions of hearts with one mind.
March on! March on! March on, on!

Today, those words are coming true for the Chinese people as they build a new wall built on prosperity & speak with one voice as a united & determined people. “Most Asians like to own their own business.” “We don’t believe that working for someone will make you really rich. The one paying you is always richer.” But what is significant is that the Chinese are discovering that they no longer have to immigrate to America to make their fortune. Many Chinese are staying home on mainland China & building their fortune & prosperity at home in China.

Right now, while America’s in a recession and Europe is stumbling, CHINA’S ECONOMY IS BOOMING… Never before in history has so much wealth been created so fast. As an investor, I’m interested in going where wealth is being created. TODAY, THAT’S ASIA. Bob Czeschin, Editor, Financial Gateway to Asia

And is this new wealth trickling to the masses & creating a sustainable & viable middle class? Look at the chart & statistics below & answer that question yourself.

Possession of Durable Consumer Goods for Every 100 Families
1990
1997
Color TV
77
113
Tape recorderset
100
99
Camera
44
52
Washing Machine
72
82
Refrigerator
88
101
Video Recorder
14
51
Hi Fi
15
Air Conditioner
50
Shower Water Heater
42
Microwave
45
Computer
8.6
What the chart above illustrates is that China is doing something RIGHT & the standard of living for her people is INCREASING.

The income levels of urban and rural residents have kept rising. In 1997, the average per capita income among local urban families reached 8,439 yuan, 2.9 times over the 1990 figure of 2,182 yuan. After deducting the inflation factor, the 1997 figure represented a hike of 60.3% over 1990 or an average annual increase of 7%.

Along with the increase in their incomes, local residents are spending more. In 1997, the average living expenses of an urban resident totaled 6,820 yuan, 2.5 times over the 1990 figure of 1,936 yuan. After deducting the inflation factor, the 1997 figure represented an increase of 46.1% over 1990 or an average annual growth of 5.6%.

Following the rise in their incomes, the savings deposits of Shanghai's urban and rural residents have been growing rapidly. By the end of 1997, the balance of their savings deposits totaled 272.957 billion yuan, 271.139 billion yuan more than the year-end figure of 1978. The average per capita savings deposits among local residents had skyrocketed from 166 yuan in 1978 to 20,909 yuan in 1997. ttp://www.shme.com/introduce/people_top.htm
Did you catch that readers? While the savings rate in the US is plummeting the Chinese have INCREASED their savings by 126 times!!!

And speaking of saving money lets SPEND a little & go out of town again! I would like to recommend a wonderful out of the way stop for those tired souls looking for an over night getaway & haven from the real world. I frequent the Carolina Mountain Area often because that is closest to where I live.

A very small village referred to as Lake Lure has a great small inn called the Esmeralda. A large stone fireplace with a warm fire burning greets you upon your arrival. But the best part of the inn is an excellent restaurant run by the proprietor’s son who is a genuine culinary trained chef. At this time of year you have to try their seasonal Maple Glazed Grilled Quail w/Fresh Harvest Salad & fall dried fruits & spiced pumpkin vinaigrette dressing. For the main entrée the Grilled Pork Tenderloin with Peppercorn & an Apple Cider Demi Glaze & toasted pecan whipped sweet potatoes is GREAT!!!

We spent the night in the room where author Lew Wallace finished the script for the production of Ben Hur in 1899. Actually, the Inn has burned down twice since he spent the night here so the location of the room is just an approximate guess.

Anyway, it’s a great little valley to rest, relax & unwind (& to think of GOLD). The movie The Last of the Mohicans & Dirty Dancing were filmed here many years ago. What attracts me to this small out of the way valley is the long history that this little town has seen. A few weeks ago we stayed at another Inn in the valley visited by Franklin Roosevelt back in the 30s. I like to consider all the history & change that this little valley has experienced. And the thought of history & past events gives me a clarity & a vision for what lies in our future. But enough of mountain valleys &back to China!

China is re-entering the world after just over 50 years of isolation as a communist state and its impact on the world’s gold industry could be SIGNIFICANT. …it is opening a new gold exchange in Shanghai which is intended to provide a platform for regulated operation of China’s gold market to develop from a planned economy to a MARKET ECONOMY. The Chinese clearly have great ambitions in gold…Minesite.com 9-16-2002

It will abolish the role of the central bank as a gold trading middleman & provide a direct trading platform for domestic buyers & sellers. China Daily, 9-10-2002

Chinese domestic demand for gold is potentially ENORMOUS… The Asian Banker 11-26-2002

Owning gold remains a symbol of wealth for many Chinese people. The central bank has shown STRONG commitment to DEREGULATING the gold market… People’s Daily

…the ultimate goal is to liberalize China’s gold market for individual investors… Chinagate.com

Strange isn’t it. The United States has been a free nation for just a little over 200 years, but has begun to destroy its financial & monetary heritage & is thereby working toward the manipulation of US financial markets & the destruction of its currency. China, on the other hand, has been a totalitarian state for many years now but has come to realize that for the country to experience real growth & financial prosperity that her people must have the opportunity to have real hard currency in the form of a free gold market. My how things do change & reverse themselves.

CHINA IS A DIFFERENT STORY; China's economy is performing WELL & is expected to show continued growth in the future. To reduce exposure to the potential decline in the value of the US dollar, the Central Bank of China has already begun converting some of its US dollar reserves into Euros and at the same time increasing gold reserves. China is also in the process of deregulating its gold market; the World Gold Council has projected that deregulation could double or triple gold demand in China over the next five to ten years. China could ultimately rival India as the world's largest gold consumer. Link to Article Source

Let’s go over these Chinese gold consumption figures carefully:

1999 - 166 Tons
2000 - 175 Tons
2001 - 182 Tons
2006 - 362 Tons (Per World Gold Council Estimate)
2011 - 546 Tons (Per World Gold Council Estimate)

Other estimates put these Chinese gold consumption estimates much, much HIGHER!!!
Let’s see what the prominent Asian Banker estimates China’s gold consumption might be down the road.

…there is a LARGE demand for gold in China, with some estimates of future annual imports running at 600 – 800 tonnes a year, quite strong against a 4,000 – tonne world market.

Can you believe these estimates readers?!!! China is estimated to INCREASE her gold consumption by close to 41&Mac218;2 times its present rate of consumption! Yes, the Chinese are no fools. It is not a mere coincidence that her wealth is INCREASING as she works diligently toward creating a freer gold market.

The "Xiaokang", or literally a " Well-off ", society includes but far goes beyond a much better off material life.

From 1978 when China started its opening-up and reform undertakings till now, it has sustained an average around 9 percent growth rate per year. Experts widely agree that China can maintain a 7 to 8 percent GDP growth for another 20 or even 40 years. But during the past two decades, China has also experienced some ground-breaking social changes.

Instead of the starkly simplified social strata of workers and farmers, new social classes, for example private entrepreneurs, managers and staff in foreign-funded and domestic firms and artistic and business free-lancers, are coming out with increasing economic and political clout due to their RISING wealth. To be considered as being "Xiaokang", Lu thinks the ratio of middle class in China's 1.3 billion population should be at least 38 percent instead of the present 18 percent.
Forest Lee, The People’s Daily

Let’s go over the above figures again. Presently 18% of China’s population represents the middle class. That is 234 million Chinese estimated to be presently scaling the ladder toward middle class status. And these figures are projected to increase to 38% or close to 500 million middle class residents eventually to represent the “Xiaokang” life style.

And what part does GOLD play in all of this?

Observers expect the official launch of the Shanghai Gold Exchange will bring China's gold industry into a MARKET SYSTEM as opposed to a planned one. "It will abolish the role of the central bank as a gold trading middleman and provide a direct trading platform for domestic buyers and sellers. Thus the prices in the market will fluctuate with international price changes." Link to Article Source

I find the above statement interesting & it illustrates the true intelligence of the Chinese people. Consider that while most of the Central Banks of the world are continuing to manipulate the price of gold China is doing just the reverse & taking concrete steps toward freeing & liberalizing the gold market in China. China recognizes that the wealth of a people is determined by a FREE gold market. While China still has a ways to go she is definitely heading in the right direction towards establishing economic & monetary freedom for the Chinese people.

I suppose that my point in going over all of this is just to show another reminder why gold is not going to disappear as a store of value anytime soon. Before I depart from the subject of China let me share some cold hard historical facts about our Western Civilization.

Western civilization is generally believed to have started in the fertile crescent of Mesopotamia between the Tigris and Euphrates. Have you noticed that from the Babylonian beginnings developments shifted CONTINUOUSLY TO THE WEST, first to Egypt, then to Greece and Rome. The epicenter of progress then shifted still further west to the European maritime nations, culminating in the British Empire. The final stage moved across the western Atlantic Ocean to America. If this rotational wheel of progress is to be maintained I must ask one question. What is the NEXT western landmass after the US? Clive Roffey, 11-18-2002

And China, though she doesn’t really comprehend it, could quicken that process very suddenly if she ever really successfully grasped the economic reality of her present superior position. Listen to these last comments from Robert Chapman concerning China’s “Ace In The Hole”.

America is sitting on the precipice of failure. 75% of the reserves of foreign countries are denominated in dollars. We believe as the economic and financial situation worsens those dollars will be sold for local currencies and gold.

A sale of $200 billion and a purchase of gold in that amount would collapse the American economy and send gold soaring. America has its military settled into the Middle East and would be of little use as a destructive force to retaliate against the Chinese and perhaps others. China is moving to back its currency with gold. Robert Chapman, 11-26-2002

By the end of September (2002) this year, China had 54.35 million Internet users… November 26, 2002 And just imagine the results of this growing number of Internet users & investors as they discover a free gold market!

* * * * *

Time for a side note.

Just as I wrap up this latest news letter we are at the start of an ice storm here in the Carolina’s. This evening before the roads turned deadly icy I said let’s go out to eat! I like the excitement of inclement weather.

We went to a wonderful small tavern close by. Every room was lit by a warm roaring fireplace. We ate our dinner at a table just a few feet from the fireplace in the main dining hall. After finishing the meal I paid the ticket & thought how wonderful it is to be able to plop down 50, 75 or 100 bucks for a meal anytime with no thought or worry about the cost. Why can we do this? Because I took gold seriously when I discovered it back in 1997.

I read earlier today an article about David Tice and his wildly successful Prudent Bear Fund in the Money December issue. The writer took great pains to try & belittle Mr. Tice for his success because he is doing extremely well in a bear market. There wasn’t any fascination or respect from the writer for David Tice’s success. And I wondered why this was so.

Why? Because most investors today are brainwashed idiots. For all the 1990s they were taught that markets only go up & never to depend on the cyclicality of markets because cycles were a thing of the past. How stupid! That is the whole intent in the purpose of these letters: to try and make readers aware that there is money to be made in a down market as well as an up market. But because investors have been brainwashed into only anticipating a rising market they do not know anymore how to protect their investments nor even to add to their investments when markets head down.

What is so difficult in understanding cycles? What goes up inevitably comes down. Do you want extra spending money & to eat well? Look for an undervalued gold mining stock selling for a ridiculous sum of half a million dollars, buy it & hold onto it for the next cyclical rise in the gold price.

Or you can go out, buy the latest issue of Money magazine, & wait for the bull market to return while you are eating your McDonalds hamburger. There are losers & winners in this world. Most winners become winners because they do not instinctively follow the herd & they dare to think unconventionally.

It’s your choice.

I should shut up here but I am worked up & excited & I have to continue. This is a news letter so I’ll add one more comment & about stupidity. I told my wife today I would rather have basic common sense than vast intellectual brains accompanied by several sheep skin diplomas hanging on a wall that needs painting. Some of the most scholarly & academically credited individuals I notice have zero common sense nor do they possess simple understanding. Nor do they have very much money in their bank account.

I do not down play a good education, but an excellent education is NEVER a substitute for simple wisdom & plain old fashioned common sense. And one other observation I notice with greater frequency as I get older is the fact that most individuals that succeed financially in this life do so because they did not follow the superior path of intellectual understanding. Most individuals who succeed financially are those who have simple God given common sense & they have the courage to apply that common sense even when it costs them personal ridicule & they are disdained by the “herd”.

A personal statement that I am coming to believe in with greater conviction is “dare to think unconventionally”. And yes, dare to be disdained & ridiculed when the stakes are high enough & justify it.

Link to Article Source

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