5 Hottest Stories on Gold -- Is China's Central Bank Buying Bigtime?

Story #1: China may have vaulted ahead of Italy and France last year to become the third-largest holder of gold, according to Bloomberg. China’s central bank probably added 622 metric tonnes last year after reserves increased 380 tons in 2012.

There’s one word for that. Whoa!

Also, this line from the Bloomberg story: “Based on conversations with officials in China and Mongolia, it’s evident that China feels they want as much gold as much as the U.S.”

I’ll do the math for you. That would mean China wants to add another 5,963.5 metric tonnes on top of last year’s buying binge. If it keeps buying at last year’s rate, that would be another 10 years of massive buying by China.

But it could buy less, it could buy more. I’d say it would buy more if it thinks it is buying gold at a discount.

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Story #2: Chinese Consumers Are Loading Up, Too!

"Should Chinese demand continue to be around 100 tonnes per month [as in 2013]," said Eugen Weinberg to Bloomberg on Monday, "then we're likely to see a strong recovery in gold prices."

Now forecasting a possible 12% rise in world prices in 2014, and noting that Hong Kong "[is] the trading hub" for China's flows, "This is likely to be make or break for this year," he concludes.

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Story #3: Arab shoppers are buying a LOT of gold.

“The impression is that these shoppers are buying into gold as a sort of defensive asset against social or economic uncertainties in their home countries.

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Story #4: Could Gold Coin Shortages Lead to Rationing?

This article is from ZeroHedge, so take it with a large grain of salt. But they’re quoting a source from the Perth Mint.

Story #5: Goldcorp Launches $2.6 Bid for Osisko Mining

Mines are valued dirt-cheap, and the miners know it. The big fish are eager to snap up the little fish. Osisko is up 19.7% on the news as I write this, while Goldcorp is down 3%. If gold prices do head higher from here, this is very accretive to Goldcorp’s value. 

Will we see more takeovers? At these prices? Bet on it!

Read the rest of the story here.

Why I Exited Most of My Gold Positions Today

What a busy day -- I've had no time to update the blog.  But I sold a bunch of my precious metals positions at the open today. Here's why ...

Even though the Fed announced no change in its quantitative easing policy yesterday, gold sold off hard. That's a bad reaction to good news -- bearish.

The pain continued when the Wall Street Journal's Jon Hilsenrath -- aka The Mouth of Bernanke -- published an article saying that "taken together, the Fed

The Mouth of Bernanke strikes fear in markets

isn't taking a December adjustment o the bond-buying program off the table."

That caused the jittery bots on Wall Street to put on a hawkish trade. They sold gold bonds and stocks.  The Dollar Index rallied.

Too bad the bots didn't bother to read Hilsenrath's next sentence: "But that comes with the strong caveat that it depends on whether the economy is living up to expectations."

Interestingly, many gold miners rallied at the end of the day yesterday. So I was on the fence.  But thinking about it overnight, I decided that discretion was the better part of valor.

So, I exited ...

• Silvercrest with a small loss (8.5%, but it was a half position, and cheap).
• Global X Silver Miners flat. I gained 3 cents a share on the trade -- not enough to cover costs.
• Market Vectors Junior Gold Miners at a 5.4% loss. Grr!
• Market Vectors Gold Miners at a 1% gain.
• B2Gold at a 2.5% gain on the combined position. I'd doubled up on that one. 

The only precious metals position I kept was Primero. Because I don't know which level of support GLD is going to test.

(Updated chart)

Maybe gold is going to head higher from its 20-day moving average (I can always buy more miners if it does). Or maybe it will go test support around 121.

I would look forward to that buying opportunity. 

I'll be more selective on miners operating in Mexico, because the Mexican Senate passed the new mining royalty law. As of January 2014, mining companies in Mexico will pay an additional 7.5% royalty on pre-tax profits and precious metals will pay 0.5% extra on top of that.

In any case, I strongly believe we saw the bottom in late June. 

That's when the selling by gold ETFS seemed to peak. Investors sold 750.2 tons through gold-backed exchange-traded products this year, erasing $60.1 billion from the value of the funds, according to Bloomberg data. Holdings reached 1,881.4 tons on Oct. 25, the lowest since April 2010.

In other news, the Chicago PMI blew out expectations, coming in much higher ...

Source

Here are the details. Two of the most impressive aspects of this month's Chicago PMI report were the big jumps in Production (+13.1) and New Orders (+15.4).

Will more news like that cause the Fed to hike rates?  I think the Fed is looking for more jobs. And the looming budget battle should cast a cloud over the economy. Once traders realize that, they'll come back to gold.

Elsewhere in the world, demand for gold is heating up.

• Demand for bullion in Dubai expanded eightfold in the last six to 10 years
• Gold premiums in India are at a record, and traders in that country still can't find supply, the government crushes legal imports. 
• Not surprisingly, the fastest growing industry in India is gold-smuggling.
• Central banks were quite bullish on gold at the LBMA Conference. The central banks of France and Germany said they had no plans to sell gold.