Now let’s ask, where’s the world’s tungsten? Here’s a recent pie chart of world tungsten reserves.

In addition to its large reserve base (57%), China presently controls about 75% of the world’s output of tungsten. Characteristically, China’s national resource policy is to ensure that the long-term needs of its own industrial base are satisfied. In the past three years, the Chinese have begun to reduce export volumes, while at the same time diverting more and more tungsten output to domestic industry or to foreign companies that locate plants in China.

Does that sound familiar? It’s the same thing that the Chinese are doing with rare earths and other elements, like indium.

Here’s where things stand. According to the U.S. Geological Survey, China dominates world tungsten mining and primary processing. Tungsten availability to non-Chinese markets is tightening, and will doubtless continue to decline. Equally important, China is now becoming a major importer of tungsten concentrates and scrap materials.

Ongoing rapid growth in demand within China will ensure that competition for raw materials between Chinese and non-Chinese processors will continue and intensify. So it’s clear that there’s now an urgent need for increased tungsten output outside China.

China Owns the Heavy Stone originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

Some question his timing, and why he’d begin a fund right now given that the precious metal is at all time highs well over $1,100. He, however, must be confident given that his own money is at stake on this new yellow wager. Paulson has a consistent record of buying assets at low valuations, so presumably he believes that gold’s also undervalued right now.

The fund will invest in both miners and other assets tied to the price of gold, and he has experience in the sector. He already has about $3 billion of Paulson & Co’s money under management invested in gold-related assets.

More details are available from the Telegraph in its coverage of John Paulson’s new gold fund.

John Paulson Launching a Gold Fund with $250M of his Personal Fortune originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

Lately, the stock market has been grabbing most of the headlines for its surprisingly strong performance since last March. But commodity prices have been surging as well. Favorable macro-economic trends are powering both markets.

The S&P 500 Index is up more than 50% from its March lows. Meanwhile, the CRB Index of commodity prices recently broke above the 280 level making new yearly highs – about a 40% advance from the lows of last year.

Therefore, no matter what America’s grim economic data may be saying, the stock market and the commodity markets both agree that some sort of recovery is underway.

I how no opinion about where stock prices are headed next, but I feel fairly confident that commodity prices will continue trending higher over the coming years. That said, many commodity markets have already posted such large gains during the last few months that some investors may be skittish about climbing aboard.

I understand this fear, but investors must remember that commodities are not homogenous. Even though many of them have soared this year, some commodities have advanced very little. Corn is one of the notable laggards…and I think it has some catching up to do.

My recent research travels took me to the West Coast to revisit acquaintances made during the July National Chicken Marketing convention. (Yeah, that’s what I do for fun!)

My big takeaway from this chicken confab was that most of the presenters and professionals in attendance believed that $3.00 corn was way too cheap and that corn prices would begin moving higher. I trust these guys. After all, it’s their business to know the cost inputs from the egg to the bird on your plate. But their bullish outlook for corn was a minority opinion at the time.

Back in mid-summer, when this convention took place, the corn crop looked likely to make it through the summer months in great shape, with no threats in sight to disrupt high yields. Consequently, corn prices were languishing near multi-year lows.

But as it turns out, the “chicken crowd” was right to believe that corn prices were too cheap. And the corn price charts from last summer confirmed the strong potential for even higher prices. Though my view on trading weighs heavily on technical analysis, I learned long ago not to ignore important fundamental information. At the lowly price of $3.00 a bushel, the upside potential for corn seemed much greater than the downside risk.

That’s why I urged the subscribers of my Resource Trader Alert (RTA) to enter a bullish trade on corn. Over at RTA we use options to directly play commodities themselves — options help limit our risks, while still providing ample opportunity to profit.

I recommended a six-month-long option play on corn, designed to benefit from any strong up-move in corn prices. The specific trade I recommended cost just a little more than $1,100 to initiate. I was looking for corn to move to $4.00 a bushel by then end of this year. But as it turned out, we hit that target in late October, which caused the value of the corn trade I recommended to more than double.

That’s just how quickly the commodity options can move – a 25% rally in corn prices caused the recommended corn options to double. By using options we were able to maximize our profit potential and substantially limit our risk.

The reality of fundamental trading on things like weather, planting intentions, yields, exports or crop disease is that the information does not flow freely to everyone at the same time. The farmers, seed salesmen and grain elevator operators use their legal inside information in the market before others. Often, price charts reflect this “insider knowledge.”

In other words, a price chart can provide an early indication that a market is about move into a bullish mode, even before any broadly disseminated public information would confirm the rising prices. Therefore, when you combine technical analysis with the informed insights of industry insiders, you can shift the odds of success greatly in your favor.

After a brief correction, corn is on the rise again and trading just above $4.00 a bushel. I’m staying with this friendly trend for now.

Regards,

Alan Knuckman,
for The Daily Reckoning

(Some) Commodities Are a Buy originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

Someone asked me yesterday a question about the euro… He said, “Chuck, I know you like the euro, but couldn’t the Aussie dollar (AUD) be a better choice going forward?” And I answered like this… The euro is the offset currency to the dollar… But that doesn’t mean it is the best performer when the dollar moves down. The Aussie dollar has outperformed the euro since 2002, and will probably continue outperform the euro… But so has the Norwegian krone (NOK), and the New Zealand dollar (NZD), and the South African rand (ZAR), and the Canadian dollar (CAD)… Hmmm… Does that list ring a bell?

Why, yes, Chuck, it does! For these are all “commodity currencies”… You’ve gotta love ’em!

Countries that have “stuff” to sell to other countries, that either don’t have the “stuff” or are too lazy to deal with it!

Well, you had a one day window to buy gold cheaper, for the overnight sessions has the shiny metal hitting on all cylinders, and soaring once again to $1,148! Don’t you just hate those one-day windows? I mean, you wanted to pull the trigger and buy, but thought, what if gold drops more today, that would mean I could buy it cheaper tomorrow… Don’t be fooled! It’s like this, folks… If you want to buy something, buy it! Trying to time a purchase will leave you sitting on the sidelines with a baseball cap turned backward on your head and holding a clipboard!

OK… Remember when I questioned the current administration’s claims that instead of “creating jobs” they were “saving jobs”? I pointed out that claiming that jobs were saved would be difficult to prove… Well, guess what? Proving that the jobs saved don’t exist has been pretty easy… And the people claiming that the stimulus “saved jobs” have egg all over their collective faces.

One of my fave economists, Nouriel Roubini, had this to say about jobs…

“Think the worst is over? Wrong. Conditions in the US labor markets are awful and worsening. While the official unemployment rate is already 10.2% and another 200,000 jobs were lost in October, when you include discouraged workers and partially employed workers the figure is a whopping 17.5%.

“While losing 200,000 jobs per month is better than the 700,000 jobs lost in January, current job losses still average more than the per month rate of 150,000 during the last recession.

“Also, remember: The last recession ended in November 2001, but job losses continued for more than a year and half until June of 2003; ditto for the 1990-91 recession.

“So we can expect that job losses will continue until the end of 2010 at the earliest. In other words, if you are unemployed and looking for work and just waiting for the economy to turn the corner, you had better hunker down. All the economic numbers suggest this will take a while. The jobs just are not coming back.”

And you think the recession/depression is going to end with the unemployment problem in this country? Not when the consumer is needed to generate nearly 70% of the GDP.

And all that tells me that the cartel/Fed is going to believe that they need to keep rates near zero for some time to come.

Yesterday’s data cupboard was a mixed bag of economic data as the US PPI wasn’t as strong as forecast, industrial production slowed in October, but capacity utilization bumped higher, and the TIC Flows for September were $40.7 billion, which was more than the $34.2 billion in August. The report showed that Japan, China and the UK all increased their holdings of Treasuries. September’s TIC Flows were probably the best report of the day, and the best report that this series has printed in a long, long time. Does this mean that the all-clear horn is blaring, telling us not to worry anymore about whether we finance our deficit or not? Well… It might be, but I’m not listening to it!

Well… The President ended his visit to China, with a call for a more flexible Chinese currency (renminbi). And… The Chinese said… Nothing! They met the President’s words with silence. I used to date a girl that would (when I wasn’t talking)… “Silence is Golden, Chuck” and I would say… “Then shut up and we’ll make a million!” HA!

Now, while it would nice if the Chinese played ball with us… I understand their dilemma… The IMF still believes that China’s currency is about 25-40% undervalued. China could not deal with a floating currency that went up 40% overnight!

Did you know that America’s trade deficit with China widened to a 10-month high in September? Well… It did, thus raising concerns that the combination of a recovering US economy and a fixed renminbi (CNY) exchange rate against the dollar will worsen global imbalances. But… As I’ve said at least 100 times before… The Chinese will do what they believe is best for their country, and that’s not floating the renminbi at this time, no matter who the US sends to visit them to persuade them to do so!

Moving further south in the Pacific, we land in Australia… I thought about the Reserve Bank of Australia (RBA) quite a bit the past couple of days… And have come to the conclusion that the December 1st meeting of the RBA will net another 25 BPS rate hike. The reason I think this, is the fact that there will be no meeting in January, thus leaving a two month gap, which in these economic times could be devastating… So… Look for another rate hike in Australia on December 1st… It would be their third consecutive meeting rate hike, and could be the harbinger to parity for the Aussie dollar.

I know that yesterday morning, I talked about how the RBA meeting minutes had been perceived as “dovish”, and that spooked the markets into thinking that the RBA would NOT hike rates in December… But upon further review, the meeting minutes were really pretty vague, and while they didn’t sound outright hawkish, they also didn’t sound “dovish” either… After reading the minutes, I got the feeling that overall, the minutes support the idea of “steady rate hikes”. I don’t think the RBA will stop until they reach an internal rate of 4.25% early next year.

I was giving an interview last week with a writer from BusinessWeek… And he asked me when this dollar weakness all started… I told him that, “Over the past nine years congress and two administrations have instituted fiscal policies that have undermined the value of the US dollar, and the deficit spending has gone from $350 billion budget deficits to $2 trillion (annualized) budget deficits in the blink of an eye. So… The dollar made brief comebacks in 2005 and in the financial meltdown of August 2008 through February 2009, but other than that, the dollar continues to decline, and I just don’t see anything on the horizon that will stop this decline.”

Well… As I look across the desk at the currency screens, I notice that every currency that’s supposed to be lighting up green (going up) is doing so, and every currency that’s supposed to be lighting up red (going down) is doing so… We’ve got it all going on today.

OK… To recap… The currencies have gained back the ground they lost in yesterday’s “risk off” trading sessions. Gold is back to soaring after a 1-day stall… Data yesterday in the US was a mixed bag. Chuck expects the RBA to hike rates in December, and China responds to the US President’s request to allow greater flexibility in the renminbi… With silence.

It’s All About the Commodity Currencies originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

1. With interest rates near zero there’s basically no opportunity cost to choosing to buy gold over Treasuries.

2. The Fed is going to keep building debt, and will eventually cause “world-wide central bank inflation as the banks seek to devalue their money in an effort to keep the dollar strong.”

3. In a departure from their usual routine of selling gold, central banks around the world are now net buyers of gold. They are looking to shield themselves from the weakening dollar. 

4. Countries are increasing the amount of gold in their reserves. On the one hand, developed nations like Italy and France hold 66.6 percent and 70.6 percent, respectively, of their reserves in gold. On the other hand, nations like Russia and China only hold 4.3 and 1.9 percent of their reserves in gold. Developing countries have an easy justification for growing their holdings.

5. Few people in the US own gold. In fact, many seem more inclined to sell jewelry through services like Cash4Gold.

6. Lastly, only a few nations, like China, are encouraging citizens to buy gold for personal savings. There’s plenty of room for buying by the public to increase. As Russell pointedly puts it, “most Americans have never seen a gold coin.”

The six reasons are presented in their entirety on The Pragmatic Capitalist in its post on why Richard Russell wants to own gold.

6 Justifications for You to Own Gold originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

It takes water to produce energy and energy to produce clean water. That nexus creates a number of profit possibilities. Sometimes, they are not so obvious. But often, a company that possesses expertise in water treatment will possess a related expertise in the energy field. The connection between water and energy is at least as old as the process of pumping water into old oil fields to boost production.

But the connection between these two precious fluids is changing quite a bit.

Let’s take a look at one of the less-obvious connections…

You may not realize this, but two-thirds of oil discovered stays in the ground. The average recovery rate is only about 35%. What if we could recover more of the oil we’ve already discovered?

If the recovery rate improved to 50%, the world’s recoverable oil would increase by 1.2 trillion barrels. It would double today’s proven reserves, says the IEA. That much oil makes even a cynical old oilman catch a gleam in his eye and starts his heart aflutter. Indeed, lots of big brains churn away at this problem day and night.

“It’s the prize for the next half century,” says Howard Mayson, vice president for technology at British oil giant BP, quoted in this morning’s Wall Street Journal. BP relies heavily on enhanced-recovery methods. These methods aim to improve that oil recovery rate.

As The Wall Street Journal reports:

“Enhanced recovery is a lifeline for the biggest oil companies, such as Exxon Mobil Corp. and BP, which are under intense pressure from shareholders to keep ramping up production and gaining access to fresh reserves. But that’s hard to do when the companies are shut out of the oil-rich Middle East and places like Russia. So they rely more and more on existing fields, some of which have been producing oil already for decades.”

It is like squeezing a sponge ever tighter to extract the most of what you can get. The old method is to simply flood the reservoir with water. The idea is to create enough pressure to make it easier to pump the oil out. It is not very efficient, but it works for a time. It is also becoming a bigger problem to secure the water supply. That’s why we see oil companies buying water rights out West. Currently, the shale oil plays consume a lot of water.

Instead of using water, some companies will pump the reservoir with carbon dioxide. Companies used to store carbon dioxide in old unused reservoirs. Using this method of enhanced oil recovery, they put that carbon dioxide to work. BP uses this method out in its Prudhoe Bay reservoir, to great effect. Recovery rates there are 60%. Now Prudhoe Bay, which people in the 1980s once thought would cease pumping oil in 30 years, looks to be good for another 50 years.

The WSJ describes another method BP uses: “flooding reservoirs with polymers that expand like popcorn when they come into contact with hot rocks, thus flushing more oil out of difficult-to-reach nooks.”

The name of that polymer is BrightWater. One company has a patent on this material and makes it for a profit. That company is Nalco Holding (NLC:NYSE), a company I recommended several months ago to the subscribers of Capital & Crisis. BP uses BrightWater in Argentina and Pakistan. “BP says the additional oil the new technology will produce over the next 20 years is roughly equivalent to finding a major new field,” reports the WSJ.

“Nalco,” you say, “but isn’t Nalco is one of the world’s largest water purification companies for industrial companies?” This is what we mean by energy-water nexus. The two are related. And Nalco sits right in the middle of that nexus.

Last year, Nalco’s energy services segment was a bright spot. Sales grew 17% organically for the year. In the fourth quarter, sales were up 23% despite the steep oil price decline. In that segment is Nalco’s enhanced oil recovery (EOR) business.

CEO Erik Fyrwald commented on this business in a quarterly conference call. “We are in with a lot of oil companies explaining and talking to them about it,” he says. “We believe as oil prices come back up, [EOR will be a] really big growth opportunity, just delayed for a period of time.”

The delay stems from the fact that many oil companies slashed their exploration and production budgets last year, when oil and gas prices were falling. But it seems inevitable that as the big oil reservoirs dwindle, the EOR business will be big down the road. Of course, EOR is only one of the many valuable things Nalco does in the energy-water nexus. It is no wonder why Warren Buffett’s Berkshire Hathaway is the biggest shareholder.

Nalco is a long-term buy.

Regards,

Chris Mayer,
for The Daily Reckoning

A Few Words About Nalco originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

Gary Weiss makes this assessment and presents his plausibility grading “on a sliding scale from 1 to 5, with 1 being ‘fugetaboutit’ and 5 being ‘damn right.’” Not everyone will agree with his assessments, but they are unique and interesting. What follows below are the five conspiracies he reviews, with a highlight comment from his discussion of each.

1. The Plunge Protection Team Manipulates the Markets

Plausibility: 1

Highlight: “‘Plunge Protection Team’ was coined by the [Washington] Post, and it stuck. The article spawned a spasm of conspiracy theories that grind on to the current day, holding that the government actually does secretly intervene in the markets, buying equity index futures or, as Ron Paul recently asserted, has sought to depress the price of gold.”

2. Wall Street Screws Consumers at the Gas Pumps

Plausibility: 5

Highlight: “Wall Street speculation that drives up prices rarely gets the public too exercised—if the prices belong to stocks they’ve bought. But speculation that drives up the price of gasoline, heating oil, broiler chickens, and other commodities has consumers ready to march down from Trinity Church carrying pitchforks.”

3. Goldman Sachs as Giant Vampire Squid

Plausibility: 4

Highlight: “Goldman Sachs, as described by Taibbi, was a ‘giant vampire squid wrapped around the face of humanity.’ Not the most precise metaphor (vampire squids are tiny deep-sea creatures that rarely encounter human faces), but the general thrust of his piece was correct. Goldman does have a way of coming out on top in every bad situation.”

4. Tim Geithner is in the Pocket of the Big Bankers

Plausibility: 5

Highlight: “There’s no question that Tim Geithner likes to talk to people who run major financial institutions, and this was long before e-mails were released showing that as treasury secretary his telephone buddies included all the major CEOs of the big banks. That was the case as well when Geithner was president of the New York Fed. No secret about it.”

5. Naked Short-Selling Killed Bear Stearns and Lehman Bros.

Plausibility: 1

Highlight: “You can believe that the CEOs of the two banks were responsible, or you can believe their excuse, which is remarkably similar. Alan Schwartz of Bear Stearns and Dick Fuld of Lehman Bros. both blamed speculators, rumormongers, and naked short-sellers for torpedoing their companies, in their respective appearances before congressional committees.”

In addition to longer descriptions of each, Weiss categorizes the conspiracies by type and grades each on scope, durability, and crowd appeal. See the full details in The Big Money coverage of the biggest Wall Street conspiracies.

The Top 5 Wall Street Conspiracies originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

And far beyond “here and there,” his biggest concern is of inflation “here, there and everywhere.” He cites Bill Fleckenstein to explain…

“[I]n a period where fears of deflation rage and too much capacity exists for so many products, it is possible for government policy and money printing to produce inflation here and there. The only question is, when will we finally evolve to the point where inflation is here, there and everywhere?”

A sampling of recent inflationary developments he’s tracked:

* A 15 percent increase in health insurance premiums for small businesses

* A 50 percent increase in car rental costs

* A 15 – 25 percent increase in long-term care insurance rates for California retirees

This inflation is likely to continue and grow in the long run. When that’s the case, it’s gold, silver and other similar assets that can offer appreciating value and a useful defensive hedge.

Duru describes why he finds the Consumer Price Index (CPI) inadequate and offers more insights in Real Clear Markets’ coverage of inflation here, there, and everywhere.

Where You Find Inflation in a Deflationary World originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

For the past 60 years, corporate debt has grown faster than the economy – 4.1% annually for debt, compared with only 2.7% for the economy as a whole. In short, more and more debt went toward producing each dollar of GDP growth.

What if this 60-year trend reverses?

In fact, I think that is the likely scenario. The deleveraging will take some time…and it won’t be fun.

“Today’s overleveraged assets will become tomorrow’s underleveraged assets, and vice versa,” QB Partners, a hedge fund, explained in a recent letter to shareholders.

What will this new world look like? More people will save more money. And they will focus more on preserving that wealth than on making a big score. We’ve been here before. Michael Farrell, the chairman of Annaly, says the psychology of people will change as it did for those of 1930s, as he discussed on his company’s first-quarter conference call:

Exhausted by the uncertainties of the 1930s and 1940s, the older generation just felt lucky to be alive and they settled into a time of saving, preservation of capital and lowered expectations as consumers.

If that kind of financial orthodoxy takes root, then leveraged assets like real estate and bank balance sheets face a long period of stagnant returns as they continue to deliver – that is, as borrowers and lenders ratchet down the debt on these things. (I find it ridiculous that government officials want us to believe that the US banking system is OK at 25-to-1 leverage. The banking system’s insolvency will become more apparent as it continues to take losses from bad debts made during the bubble.)

Deleveraging puts pricing pressure on leveraged assets. Banks must raise capital, diluting their shareholders and hurting their stock prices. Real estate owners must sell property to raise capital to defend other properties, thus putting pricing pressures on real estate assets. And so on…

So as an investor, it will pay better to stick with the unlevered assets, which face no such head winds. After all, there is no pressure to sell an asset with no debt, no ticking clock. “What are the most underleveraged assets?” you ask. QB Partners gives the answer: hard assets and natural resources.

The ultimate unlevered hard asset may be humble old gold.

In fact, something important is happening in the gold markets right now. All through the 1990s to the present day, the world’s central banks were net sellers of gold. Europe’s central banks, for instance, have sold 3,800 tonnes of gold in the last 10 years. According to The Financial Times, this move has cost them $40 billion, and that’s with gold at $900 an ounce.

Well, too bad for them. But suddenly, that recent habit of selling gold is changing. Last year, central banks sold only 46 tonnes, which was the lowest amount in 10 years.

As the FT reports: “Sales in Europe have slowed to a crawl and fresh demand is emerging elsewhere and the financial crisis has helped to highlight gold’s value in turbulent times.” In fact, we may soon see central banks flip to net buyers of gold.

China has doubled its holdings of gold this year and is now the world’s fifth largest holder of the metal. China is likely to be a buyer of gold for years because its gold holdings are still very small relative to the size of its total reserves. Gold represents only 1.6% of China’s reserves, versus a global average of nearly 11%. To further diversify its reserves – just to get to average – would require significant amounts of gold.

In a post-2008, deleveraging world, it is the unleveraged assets that will outperform against those saddled with debt. It’s another plank in the case for gold, which just seems to get stronger with each passing month. “A new chapter has begun in the gold market,” the FT opines. Indeed, it has.

The International Monetary Fund, never known as a wise handler of money, is selling a bunch of gold. India bought half of it. A number of emerging market central banks are also upping their gold exposure. Maybe these CBs are onto something.

Russia’s gold holdings now make up 4% of its foreign reserves, compared with only 2.2% at the beginning of the year. Smaller central banks are also being crafty. Ecuador’s gold holdings have more than doubled since the start of the year – to 54.7 tons, from only 26.3 tons. Gold now represents 32% of that country’s reserves. Even Venezuela is buying gold. Gold now makes up 36% of its reserves, compared with only 23% in 2009.

So who is the sucker here?

Perhaps central bankers see more clearly than most what the effect of all their money creation will be. In recent months, we’ve seen a truly unprecedented boom in bank reserves. Bank reserves drive money creation. More money means money buys less – and the gold price should rise.

Then there is this chart of the Shadow Gold Price. In the old days of the Bretton Woods Agreement, countries had to maintain certain ratios of gold against their currencies. The Shadow Gold Price aims to replicate this discipline. So for the US, the Shadow Gold Price is Federal Reserve Bank liabilities (bank reserves) plus money in circulation divided by US gold holdings. Also on the chart, you can see the spot price of gold.

The important thing here is that you see how massive amounts of money creation have barely made an impact at all in the gold price – so far. Gold is fundamentally cheap compared with all the money added to the system in recent months.

As Paul Brodsky and Lee Quaintance of the hedge fund QB Partners write:

“If one allows for even a small probability of a future monetary system that reflects more honest/tangible money, then a quick glance at the graph above makes it easy to conclude that spot gold is fundamentally cheap. Even if this is too far a stretch for market participants skeptical of such a radical change in monetary policy, it is reasonable to conclude that the prices of spot gold and the Shadow Gold Price should converge somewhat over time.”

They note that the spot gold price has never been so cheap compared with the Shadow Gold Price. For parity to set in, gold would have to trade for $16,000 per ounce! No one is predicting $16,000 per ounce gold. In any case, it shows you the risk of holding paper – and bonds – on the eve of a massive devaluation of the dollar. Maybe the central bankers of Russia, Venezuela and Ecuador understand all of this better than they let on and that’s why they are buyers of gold.

It seems pretty obvious to me that if you create a lot of money, you are going to destroy the value of that money. And in that case, you want to own something other than that money.

Regards,

Chris Mayer,
for The Daily Reckoning

Another Reason to Buy (More) Gold originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

That looks impossible against China’s arable land base, which has been in decline since 1988 — this despite the fact that China subsidizes agriculture. Another reason is the low level of water resources in China. (See the nearby chart ‘Who Has Water… And Who Doesn’t.’) Soybeans require a lot of water — 1,500 tonnes of water for one tonne of soybeans.

This chart is telling. Who has lots of water? Brazil. So it is no surprise to discover that the increase in demand for soybeans from China has largely been met by increasing soybean acreage planted in Brazil. (Brazil is the second-largest exporter of soybeans in the world, behind the United States and ahead of Argentina and Paraguay.)

The easiest way for China to get around its water shortage is to import soybeans. By importing soybeans, Passport calculates that China is effectively importing 14% of its water needs.

So now we are in a position to connect some dots. China’s increasing population and affluence will drive its soybean imports. These imports will come mainly from Brazil. And Brazil, as it converts more arable land to producing farmland, will need a lot of potash and phosphate.

What is true of soybeans is also true of wheat and corn and rice and other agricultural commodities. We’ll need more of all of them. And all of them face the same challenges for water and land. All of them require lots of fertilizer.

Getting China Clean Water originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.