Chinese Gold-Mining Stocks Thunder
Stewart Thomson | Apr 22, 2015 08:18AM ET
The upcoming FOMC meeting on April 28 – 29 could keep COMEX gold prices under some pressure. Regardless, influential Western bank economists continue to focus more on events in Asia.
In the West, gold is mainly associated with extremism. Fear of impending financial disaster is the main reason Western people buy gold. In Asia, gold buying is associated with moderation.
As Asian influence on price discovery increases and COMEX influence wanes, gold will trade with more intraday stability.
Dutch bullion bank ABN Ambro joins the fast-growing list of Western bullion banks that predict multi-year growth of Asian demand for gold.
The latest PBOC (Chinese central bank) move to cut reserve requirements for commercial banks should inject about $200 billion into the economy. Many Chinese citizens believe the government want them to divert investment from real estate into the stock market, and they are doing so.
The rise in the stock market is creating a lot of wealth for Chinese investors, and they are celebrating by buyinggold jewellery. The first issue of the Apple (NASDAQ:AAPL) gold watch sold out in less than an hour in Chinese stores!
Over the next two to three years, Apple will likely need substantial amounts of gold to meet the massive demand for its gold watches. Each watch is made with about two ounces of gold.
That’s the daily chart for Zijin Mining (SS:601899), the largest gold mining company in China. I own the stock, and I’m an eager buyer of much more stock,on every 25 cent decline in the price.
ZiJin made a high in the fall of 2010, as most Western mining stocks also did, but note the key low for ZiJin that formed in the summer of 2013. ZiJin has staged a phenomenal breakout from a huge bullish wedge pattern.
Gold mining stock enthusiasts should consider making ZiJin a solid portfolio holding.This great company is clearly poised to be a leader in the gold jewellery oriented “bull era”.
Get The News You Want
Jim Cramer is a household name amongst CNBC fans, and he’s warming up to gold, and to gold stocks.
Central banks have been steady buyers of gold for the past fourteen years. Canada’s largest bank is RBC. The analysts predict another big year of global central bank gold purchases in 2015.
Bloomberg News reports that Russia’s central bank is buying gold again. I love the consistency of the purchases. Rather than just a knee-jerk reaction to a single financial system event, that consistency shows a relentless commitment to the ultimate asset.
Whether an investor buys gold because of fear or love (or both reasons in my case), this picture from Demonocracy.info speaks a thousand words about how rare gold truly is.
Finely crafted gold jewellery is the most beautiful thing in the world. I would never give up any of my 22 carat and 24 carat jewellery. Like the “goldaholics” of India, Ialways want more! Nor would I part with my gold bars. Those are any investor’sprime line of defense,against the crazed actions of governments and central banks.
Gold stocks are also gaining new respect from top institutional economists and money managers. On every level, it’s clearly the greatest time in history to be involved with gold!
I’ve predicted that the gold jewellery industry will surpass the oil industry in size, in the coming decades. Granted, that’s partly because of the rise of alternative energy, but I expect the number of gold jewellers in China and India to double by the year 2020.
The GJF has a new Chairman, and he notes that April demand in India will surpass 100 tons again. March demand was more than 150 tons.If gold bought from the mafia is included, the April number is probably quite a bit higher than 100 tons. The bottom line is that despite 10% duties in place, gold demand is almost 90% higher for this April’s Akha Teej (Akshaya Tritiya) gold buying festival, than it was last year!
India’s economy will dwarf the economy of China in time, and China’s will dwarf that of the entire Western world. As the Chinese and Indian citizens get even modestly richer, they will demand vastly more gold, to celebrate their economic excellence.
Companies like Zijin already have substantial partnerships with some Western gold miners. I expect those business dealings to expand exponentially, to ensure that Chindian citizens get “first dibs”on the world’s gold supply.
That’s the daily chart for silver. Note the nice bull wedge pattern in play now. Silver tends to outperform gold on rallies.
Gold and silver will trade generally sideways until Chindian demand swamps mine and scrap supply. This is an ideal market for traders; declines can be bought without much fear, and rallies can be sold without worry that price is “getting away”.
To cover this point in more detail, I’ll note that some conspiracy buffs refer to the COMEX as the “CRIMEX”. They argue that Asian demand is not reflected in COMEX price discovery. That may or may not be true, but as price discovery moves from London and New York to Shanghai and Dubai, events in the West could wane in their ability to move the gold price in any direction.
That’s the (ARCA:GDXJ) daily chart. The price action fits perfectly, with the gold demand news coming out of China and India. GDXJ has staged an upside breakout from a huge downtrend line. That line extends back to July of 2014. Rather than leaping “vertically higher” after the breakout, I expect GDXJ to grind steadily to the upside, as gold jewellery demand grinds higher. That will result in superb percentage gains for gold stocks, but until wage inflation in America rises substantially, I doubt there will be any kind of “parabolic move”higher.In the 2015 – 2020 timeframe, even if there is no wage inflation (doubtful), I expect junior gold stocks to be the world’s best performing asset class!
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