John Ing says Gold Should Be US$9,000 per Ounce

China holds sway over US$

Diane Francis, Financial Post Published: Saturday, May 16, 2009

Related Topics

"The U. S. should be afraid, very afraid. China is questioning the dollar's status as a reserve currency and, at US$1,000 an ounce, gold has become the world's de facto currency." -- John Ing, Maison Placements in Canada

It is a chilling statement from an expert on both gold and China. But he is speaking the truth: In a G2 world (the United States and China), he who is the piper calls the tune, and China holds a US$2-trillion mortgage on the United States and is not happy. This country, along with others that lend money to the United States, such as Saudi Arabia, will determine the value of the U. S. dollar and gold. And they have spoken. They are not buying more U. S. treasuries and are buying gold as a new asset class. China announced that it was doing so quietly, and recent reports are that the Saudis and others have been buying bullion and hocked gold jewellery from around the world.

The only way is up for gold prices because the United States, which backstops the International Monetary Fund, the world's lender of last resort, has had to become its own lender of last resort.

Washington has cranked up the printing presses in an unprecedented way, replicating the behaviour of its spendthrift corporations and consumers. This year's budget is US$3.5-trillion, bigger than any in history.

And as Ing points out, the "bi" in this bipolar global economy is China. Beijing has not only started to hoard gold but has continued to talk up a new reserve currency concept to replace the U. S. dollar. The only reason the Chinese and others don't dump U. S. dollars is because it would be like shooting themselves in the foot.

Inflation, on top of excessive money supply dilution, will (unless mitigated by growth or stoppage) reduce the dollar's value. Ing estimates that the printing of money to bail out banks, autos and the U. S. economy will create a catch-up in gold bullion prices: "Gold should be US$9,000 an ounce to cover the [current and projected] U. S. monetary base," he says.

China has become the world's fifth-biggest gold hoarder, in addition to being the world's biggest gold producer (through its government-owned mining companies). I also suspect that China is behind the political sabotage in Mongolia, to its north, which has for five years prevented Ivanhoe Mines of Vancouver from producing gold and copper from its massive discovery.

Clearly, China also has been dis-investing from the U. S. dollar by getting slowly into hard assets (stock, commodities or ore bodies), which I have written about. This concerns Washington, which is why Hilary Clinton, U. S. Secretary of State, made her first state "house call" in Beijing to make nice with America's first mortgagor.

At that time, and publicly, too, China warned the United States about its dollar woes, while suggesting a basket of currencies to replace its pre-eminence. These scary pronouncements were followed by an announcement in Washington a few weeks ago that there would be a massive U. S. Treasury buyback of U. S. bonds. Put another way, the Chinese and others aren't buying anymore so the surpluses are being mopped up by putting more on the taxpayer tab.

It is an irreversible trend that China and others will continue to disinvest and diversify out of U. S. dollars, and that inflation will further impair the U. S. dollar's value. That's because the U. S. monetary/economic rescue is simply Washington's version of the excesses and over-leveraging that led to the need for a rescue in the first place.

St. Elias, a Speculative Junior

St. Elias Mines Ltd., along with many others, is a speculative junior exploration company listed on the TSX Venture Exchange.  Why do people invest in juniors?  They are speculative, risky and the odds are unfavorable.  And why invest in St. Elias?

The Allure of a Junior

Why do people invest in speculative junior exploration stocks?  The attraction to investors is simple.  It can be compared to buying a lottery ticket where a small amount of money may become a substantial amount, however, the difference being with an investment in a junior stock there is an excitement generated during the race and the potential for profits frequently, even during the early stages.  Quite simply, people are attracted by the excitement of a drill hole, the possibility of a discovery that will change the investment of a few thousand dollars into hundreds of thousands, or millions, possibly overnight.  When a discovery hole happens, everyone wins, not only insiders, brokers and promoters, but little old ladies in tennis shoes, bartenders, janitors, barbers, cabbies and just about every Tom, Dick and Harry.  The enthusiasm spreads like wildfire.  The stock takes off !

There many examples of major discoveries made by speculative junior exploration companies, some of which are:

1965    Pyramid Mining Company*  The shares rose from $0.25 to over $20.00 per share (in 1965 dollars) on a lead/zinc discovery in the Northwest Territories, Canada  (*credited as being the first major success/discovery by a Vancouver Stock Exchange company)

1980    Carolin Mines Ltd.  From a $0.25 stock, Carolin shares climbed to the giddy height of $40 on a gold discovery in British Columbia, Canada.

1992    Dia Met Minerals Ltd.  The shares skyrocketed from pennies to $70 a share following major diamond discoveries in the Northwest Territories, Canada.

1994    Diamond Fields Resources Inc.  The stock began a rocket ride from $4.20 a share in November 1994 to $167 per share in May 1996 on a nickel discovery in Newfoundland, Canada (eventually bought out for $4.5 billion by nickel giant Inco Ltd.)

1996    Arequipa Resources Ltd.  In 1995 the shares were trading at $1 and in 1996 the stock skyrocketed to $35 a share on a gold discovery in Peru (shortly thereafter they were taken out by Barrick Gold at a price of $30 per share.)

It is important to note that 75% of all discoveries are made by juniors and that the major producers are facing a decline in gold reserves so they’ll have to go after the juniors.  When a junior makes a big discovery it will be in the spotlight straight away. 

Why St. Elias?

St. Elias has recently released a news release setting out its plan for the exploration and advancement of its 100% owned Tesoro Project located in southern Peru.  The plan includes extracting and processing an existing mineral resource, conducting a geophysical survey to assist in defining drill targets and drilling deep holes.  The Tesoro Property has never been evaluated to depth or to its full strike potential.  This leaves a large potential for the discovery of additional mineralization.

The Property is part of the well-known gold-bearing Nazca-Ocoña belt that is located in southern Peru.  The Nazca-Ocona gold belt is approximately 300km X 30km and at least 70 known gold deposits have been exploited to date.  Gold is associated to disseminated sulfides than seeped into quartz veins or rock fractures.  The continuity of the quartz veins and fractures is very impressive in the Nazca-Ocona belt.  It is not uncommon to find veins with lengths of several kilometers.  The veins are mesothermal veins and are narrow, typically 1.0 metre or less wide, but are very high grade and tend to extend at depth for up to 1,000 metres (as known so far.)

The Nazca-Ocona gold belt has a long mining history dating back to pre-Incan time.  Gold has been extracted from this belt for not only years, decades and centuries, but millennia.  The gold of the area is said to be known by the Incas and some of the gold obtained by the Spanish conquistadors is said to have been mined by the Incas in this area.   The source of the gold has never been located.