I knew China was becoming a factor in POG but had no idea it was this big. Very nice to see KXL move up.

Ed Steer, whose free daily e-letter Gold & Silver Daily has a growing legion of fans (which you can join by clicking here), sent along an interesting analysis from MineWeb this morning, titled “China can no longer afford to let gold or silver price slump.” The rationale behind that contention is that with the Chinese government now promoting precious metals to the general populace, it would be highly problematic should gold and silver subsequently take a nose dive.

You can read the MineWeb article here.
http://www.mineweb.com/mineweb/view/mineweb/en/page72068?oid=88887&sn=Detail

In many cases, what a government wants and what ultimately occurs can be wildly different, due to unintended consequences rarely foreseen by officialdom, and because once the masses get it into their heads to break one way or another, government’s desires are largely ignored.

“You shall not smoke marijuana,” says the government. “Roll me another,” says John Q. Public.

But in the case of gold, interestingly enough, the Chinese government has the means at its disposal to actually do something about prices. Namely, at $1,000 an ounce, the total value of all the gold ever mined comes to about $5 trillion. Of that amount, less than $1 trillion is held in official reserves, the rest held under mattresses, in jewelry and family heirlooms, and in various ETFs – GLD being the biggest, by far, holding about $34 billion worth of gold.

Against these totals, China has foreign reserves in excess of $2 trillion. In other words, more than enough to push the tiny gold market around in any way it wishes. Given that much of its reserves are now denominated in fragile U.S. dollars that it would sorely love to replace with something more tangible, and that China is the world’s largest gold producer, the country’s involvement with gold is something more than just a passing fancy.

Simply, there is a new gorilla in the room in global gold markets. The extent to which the broader market hasn’t yet figured this out is the extent to which you as an early mover can ultimately profit. Especially in the more leveraged gold stocks, which continue to be strong even as the broader markets show weakness.

That all of this comes before the dollar hits the wall it must hit, or before the inflation that is now baked in the cake arises, lends a lot of credibility to the idea that when the gold bubble begins to expand, it could reach all the way to the moon.

Buy on dips, but buy.

If you are new to the sector, my very best advice is to begin building your understanding of the precious metals and the various ways to invest right away. The least expensive way to do so is with a subscription to our Casey’s Gold & Resource Report. At just $39 a year, it will pay for itself many, many times over. The next edition is on the proverbial press now – so taking a subscription today is not only smart but especially timely. More here.

And with that sincere though biased plug, I will sign off for the week and for the weekend.

Until Monday and a fresh new week, thanks for reading!

David Galland
Managing Director
Casey Research