August 2009  Probably the largest event of the month is the gold and silver breakout that started on Wednesday, September 2. The breakout occurred in the physical metals and shares of almost all explorers and producers. The gold index (XAU) was up over 10% on the week. This was all done with a large increase in volume which shows that there was a tremendous amount of buying in a short period of time. Large amounts of money were transferred rather quickly and it seems as this should continue. Precious metal prices and shares have underperformed the general market over the last quarter but now it seems that they should greatly outperform the general stock market. It goes to show why you always need to have a certain amount of your equity in gold and silver because the moves can be rather abrupt and, if you are not in, it can be difficult psychologically to chase a market that is moving higher.  One of our biggest news stories comes out of China this week that the government is encouraging the general public into buying gold and silver which could have a rather dramatic effect on those markets. The report notes that China's central television (the largest government owned media organization) has run a news program telling the public how easy it is to buy precious metals as an investment. China has introduced the first ever investment opportunity for silver bullion bars in the form of 500 gram, 1 kilogram, 2 kilogram and 5 kilogram sizes, with 99.9% purity. Analysts are quoted as saying that silver has been undervalued in recent years, and they add that the metal would be a good, long term investment. Previously, the distribution of gold and silver was strictly controlled and now they are encouraging the public to purchase, through the Chinese banking system, precious metals. Every bank will have available gold and silver bullion bars in 4 different sizes which are said to be soaring in popularity.
Why would the Chinese government be encouraging the population to invest in precious metals? The Chinese are now the largest producer of gold. We don't know exactly the size of their gold holdings because they tend to be rather discreet about their trading patterns as not to influence markets for their own benefits. By having individuals owning physical bullion, they could be trying to create a prosperous middle class. The Chinese could definitely influence the market more than any other country as they have the largest population base. If their own society becomes better off, they will not have to rely on exports to the U.S. whose economy is having rather large internal problems. If only 7% of the population purchases 1 ounce of gold, that will be the world's entire annual production (80 million ounces)! If all of the 1.2 billion people decide to purchase only 1 ounce of gold, that would be 15 years of current, annual production. Doesn't this sound like a good reason for owning precious metals and the shares of companies that are involved? All gold and silver investors should thank the Chinese government for promoting their investments. 
Hong Kong is removing all of its physical gold holdings from depositories in London. They are said to be transferring them to a new high-security vault located at the city's airport. The depository would support a new trading hub for Asia's growing demand for bullion trading and storage. This would lessen the impact that London currently possesses. The Hong Kong monetary authority that serves as the area's unofficial central bank would transfer its gold reserves stored in other vaults to this new depository later in the year. A rather interesting situation is also occurring this week with the CFTC (Commodity Futures Trading Commission). They have recently expressed concern about speculators driving up prices of various commodities. The CFTC wants to limit long positions held by ETFs, hedge funds and the like in futures trading. The thing that we find rather confusing is why they are not concerned about limiting short positions. Are they concerned about a declining U.S. dollar and how commodity prices could take investments away from U.S. assets? This could help explain the collapse in natural gas prices as funds are reluctant to carry large long positions and are forced to cover the positions that they have. Now is probably a great time to buy the gas as the market will likely go up in value over the winter months. We will be looking for buying opportunities in shares of undervalued gas plays for tremendous profit opportunities. GATA (Gold Anti-trust Action Committee) has, for a long period of time, conjectured that various banks and investments houses have carried large short positions in gold in order to prop up the U.S. dollar,their fiat currency. We recommend that you go to GATA's Web site (http://www.gata.org) and do your own research as they have very interesting and informative articles.
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