China buys gold and the world follows


By Myra P. Saefong
Friday, January 21, 2011

Gold prices have lost around $75 an ounce this year but analysts are unfazed by the drop, with many betting the slump in prices will soon be cut short as the Chinese New Year feeds an increase in global demand that's destined to last.

"We are entering a period of strong seasonal growth in gold demand and Chinese New Year is a big part of that," said Brien Lundin, editor of Gold Newsletter. "Physical demand has been supporting the gold prices on the downside even during the typical slack periods, and I expect that upcoming increase in demand will also support the price, but at higher levels."

The Chinese New Year, also known as Lunar New Year, begins on Feb. 3 this year and ends with the Lantern Festival 15 days later.

"Chinese gold and silver demand has been phenomenal ahead of the New Year holiday," said Adrian Ash, head of research at, a leading online service for gold bullion trading and ownership, citing comments from dealers among others.

Shipments have been "heavy" and they began very early, in mid-December, he said.

... Dispatch continues below ...


Sona Drills 85.4g Gold/Ton Over 4 Metres at Elizabeth Gold Deposit, Extending the Mineralization of the Southwest Vein on the Property

Company Press Release, October 27, 2010

VANCOUVER, British Columbia -- Sona Resources Corp. reports on five drillling holes in the third round of assay results from the recently completed drill program at its 100 percent-owned Elizabeth Gold Deposit Property in the Lillooet Mining District of southern British Columbia. Highlights from the diamond drilling include:

-- Hole E10-66 intersected 17.4g gold/ton over 1.54 metres.

-- Hole E10-67 intersected 96.4g gold/ton over 2.5 metres, including one assay interval of 383g of gold/ton over 0.5 metres.

-- Hole E10-69 intersected 85.4g gold/ton over 4.03 metres, including one assay interval of 230g gold/ton over 1 metre.

Four drill holes, E10-66 to E10-69, targeted the southwestern end of the Southwest Vein, and three of the holes have expanded the mineralized zone in that direction. The Southwest Vein gold mineralization has now been intersected over a strike length of 325 metres, with the deepest hole drilled less than 200 metres from surface.

"The assay results from the Southwest Zone quartz vein continue to be extremely positive," says John P. Thompson, Sona's president and CEO. "We are expanding the Southwest Vein, and this high-grade gold mineralization remains wide open down dip and along strike to the southwest."

For the company's full press release, please visit:

"Chinese New Year is the time of year when the Chinese share gifts, usually money in little red envelopes," said Mark Leibovit, chief market strategist for "Perhaps the little red envelopes will be a bit heavier this year."

But the recent spike in China's demand for gold goes well beyond providing gifts to celebrate the new year.

"It's really simple," said Cary Pinkowski, chief executive officer of Astur. "China banned gold ownership for most of the 20th century and that's over. China has a savings rate of more than 30%" and "an official inflation rate of 10%."

On Thursday, data out of China showed that consumer inflation hit 4.6% year-on-year in December and GDP expanded by a faster-than-expected 9.8% year-on-year for the fourth quarter. The news sparked a global selloff in commodities and stocks on worries that the fast expansion would prompt policy makers to hike interest rates again. Read more on Chinese growth and inflation.

"The Chinese will buy more and more gold just as every other civilization has in inflationary times and with their high savings rates, they have the money to do it," Pinkowski said.

And buy they have.

Since 2005, the January through March period has seen China's private household gold demand average a rise of 22% from the previous nine months, according to a BullionVault analysis, based on GFMS data courtesy of the World Gold Council.

"Long term, that's meant Chinese households have put an ever-greater proportion of their fast-growing annual savings into gold," said Ash, with that portion growing from 0.8% of retained income in 2001 to a forecast of more than 1.7% in 2010.

The number of gold savings accounts, meanwhile, launched by the Industrial and Commercial Bank of China Ltd. only a year ago, has grown beyond 1 million without much public relations or marketing, "which is an extraordinary pace of demand growth," said Martin Hennecke, associate director at Tyche Group in Hong Kong.

China is not alone.

India continues to be the world's biggest gold buyer.

India's import figures for 2010 were sharply higher -- almost one-half above 2009's depressed level, according to Ash.

Gold-buying demand is "traditionally strong" from September through November in India, a combination of the five-day Diwali festival of lights that began on Nov. 5 and the post-harvest and wedding seasons. Gold prices during Diwali jumped 10%, on average, from the previous three months, Ash said.

"China is in the process of overtaking India as the biggest national buyer of gold," said Julian Phillips, an editor at "At a minimum, the two countries take half the newly-mined gold and the figure is rising."

Despite all those supports, gold prices have dropped over 5% from the end of last year. Gold futures sank almost $24 on Thursday alone to finish at a two-month low of $1,346.50 an ounce. Read about gold’s drop on Thursday.

Gold seems to be taking its cues from the dollar, said Peter Grant, senior metals analyst at USAGOLD-Centennial Precious Metals Inc. But he added: "The inverse correlation has been muted somewhat by the perception that sovereign debt risks in Europe have been relieved to some degree."

The "correction could certainly extend purely on technicals," he said, but "I don't see a compelling fundamental reason to be short gold."

Chintan Karnani, chief analyst at Insignia Consultants in New Delhi, said he's "skeptical" about gold prices and expects them to fall to $1,344 or below before the Chinese New Year.

"My experience is that gold falls whenever physical demand is high and it rises whenever investment demand rises," he said, pointing out that gold investment demand is not that high at this time.

Among the factors that could still cause a crash in gold prices is "potential liquidation tied to solvency concerns of some American and European financial institutions," Paul Mladjenovic, market analyst at, said. "This would be fallout from issues tied to Europe's debt crisis as well as the municipal debt crisis in America," he said.

Karnani believes that inflation in food and energy prices is actually another potential worry for the gold market. "If food price inflation continues to rise at the current pace, then gold prices will initially rise but towards the end of 2011 [they] will crash."

"Global growth will be derailed," gold and equities will "come down crashing," and India and China will also be affected, he said. After all, "common man does not eat gold. He eats food."

But so far this year, gold's recent weakness pales in comparison to its more than $1,000-per-ounce jump over the course of the last 10 years.

"Gold has been in a multi-year bull market," said Chris Mayer, a managing editor for Agora Financial and contributor to the Daily Reckoning. "When people are worried, they are going to look at that performance and it is going to make them feel even more comfortable about owning some."

Americans would be amazed at the crowds of ordinary people in China buying gold coins, figurines and bars, "hand over fist," he said about a visit to a gold market last year in Beijing.

But don't expect spectacular gains in gold all at once this year.

Although "the pace of rise of gold will be slow in 2011 as compared to 2010, 15% to 20% annualized return in 2011 can be achieved," so if you are invested in gold, then hold on to it, Karnani said.

If you have not yet invested in gold and want to invest, "watch gold for a fortnight and invest around $1,335 in small amounts and aggressively below $1,275 and below," he said.'s Phillips advises investors to "stay calm and keep their seatbelts on." He said $2,000 gold is possible this year.

And Ed Bugos, director of mining finance at Strategic Metals Research & Capital, said, "Don't take your eye off the ball. It's a bull market."

That bull market doesn't need new fears, or events, or news to feed off, he said.

"The fundamental premise is the falling value of the paper world around it," he said. "Crises and other problems brought about by the inflationary policies that debase money in the name of growth" are why investors flock to gold.

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Prophecy Drills 71.17 Metres of 0.52% NiEq
(0.310 % Nickel 0.466 g/t PGMs +Au and 0.223% Copper)
from surface at Wellgreen Project in the Yukon

Prophecy Resource Corp. (TSX-V: PCY) reports that it has received additional assays results from its 100-percent-owned Wellgreen PGM Ni-Cu property in the Yukon, Canada. Diamond drill holes WS10-179 to WS10-182 were drilled during the summer of 2010 by Northern Platinum (which merged with Prophecy on September 23, 2010). WS10-183 was drilled by Prophecy in October 2010. Highlights from the newly received assays include 71.17 metres from surface of 0.52 percent NiEq (0.310 percent nickel, 0.466 g/t PGMs + Au, and 0.233 percent copper) and ended in mineralization. For more drill highlights, please visit: