An Insatiable Appetite for Gold

While one has to give China credit in its quest for accumulating gold bullion, the country is taking its approach to another level.

China is home to very large gold mining companies that produce 390 tons of gold bullion every year, which China is keeping for itself—not allowing the gold mining companies to export this gold bullion.

Zijin Mining Group is the largest of China’s gold mining companies. It has just offered to pay a 46% premium for Norton Gold Fields, one of Australia’s gold mining companies.

Zijin also owns a 60% stake—controlling rights—to Altynken, a major gold mining company based in Kazakhstan. And Zijin has said that it is setting aside 5.5 billion yuan ($880 billion) of cash that it has on hand for acquisitions overseas.

China’s Mining Federation is studying different ways it can make capital more available to its gold mining companies, so that acquisitions overseas will be that much easier.

In response to the Federation’s plan, one exchange has created a 10-billion yuan ($1.6-billion) venture capital fund that gold mining companies can access specifically for mergers and acquisitions overseas—to make the money available to Chinese gold mining companies and to help with logistics, to make the process easier.

There is no question that Chinese gold mining companies face opposition to buyouts overseas, as many countries want the commodities—and especially gold bullion—to remain within the control of the country itself.

However, offering premiums of 46% from what a gold mining company is currently worth can simply be too good an offer to resist. China is less concerned about price, and more concerned about securing gold bullion to back its currency.

The People’s Bank of China—equivalent to the Federal Reserve here in the U.S.—has been busy attempting to acquire gold bullion wherever it can find it. China has banned all exports of gold bullion and ordered its gold mining companies to sell all of their gold bullion to the People’s Bank of China.

It seems as though the country is also helping to fund its gold mining companies with capital, which is enabling them to buy gold mining companies overseas, mine the gold bullion, and return it back home where it can sell it to the People’s Bank of China.

As the saying goes, there is more than one way to skin a cat. It looks like China, in its desire to increase its reserve of gold bullion, which is just of fraction of what Europe and the U.S. holds, is using its gold mining companies to help with the confiscation of gold bullion worldwide.

So if you are thinking about selling your gold bullion, dear reader, there is a smart willing buyer who will be more than happy to take it off your hands. (Also see: China’s Appetite for Gold Far From Subsiding.)

Where the Market Stands; Where it’s Headed:

There is no doubt; the stock market rally that started in May of 2009 is losing steam each passing day. The Dow Jones Industrial Average fails to stay above 13,000, while more cracks in the economy appear each passing day.

No, we did not reach that speculative phase we would traditionally see at the end of rally. But even if it does happen, the five-percent upside potential left in the market may not be worth the risk for the majority of my readers.

What He Said:

“Prepare for the worst economic period ahead that we have seen in years, my dear reader, as that is what I see coming. I have written over the past three years how, in the late 1920s, real estate prices fell first before the stock market and how I felt the same would happen this time. Home prices in the U.S. peaked in 2005 and started falling in 2006. The stock market is following suit here in 2008. Is a depression coming? No. How about a severe deflationary recession? Yes!” Michael Lombardi in PROFIT CONFIDENTIAL, January 21, 2008. Michael started talking about and predicting the economic catastrophe we began experiencing in 2008 long before anyone else.