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Dear Reader,
China has a problem we'd all like to have: too much cash.
This mountain of currency comes in the form of euros, yen, pounds sterling, and — most
of all — American dollars.
In fact, more than half of the Chinese foreign reserves are in U.S. dollars — close to $2
trillion at this point.
It's enough money to buy 1,000 B2 Stealth bombers, 140 nuclear-powered aircraft
carriers, or all the real estate in Manhattan two and a half times over.
Now, while you might think this is a nice problem to have, to the Chinese, it's not so nice.
You see, China's cash holdings, like I mentioned, are broken up into several major world
currencies:
More than 60% is invested in the good ol' greenback.
Problem is that the greenback, like the yen and the euro, is a constantly depreciating
asset.
In fact, when compared to the dollar of 100 years ago, today's money buys you barely
4% of what it did back when Henry Ford was turning out Model Ts...
Which means the Chinese are sitting on a mountain of money that's constantly eroding.
At today's dollar inflation rate, Chinese reserves are shedding $40 billion in purchasing
power per year.
That's $110 million per day... $4.5 million per hour... $76,000 per minute.
In the time it took you to read the last two sentences, China's stash of greenbacks
became $12,000 less valuable.
And that's not even counting the other $1.4 trillion in foreign currency, which drops in
value at comparable rates as the European and Japanese economies tackle their own
debt crises.
Losses like these are not sustainable even for a stagnant economy. For a burgeoning
economy trying to support a rapidly developing national infrastructure, losses like these
are catastrophic.
The Chinese, however, aren't the sort to just sit by and hope for the best.
Even as you're reading this, they're making moves that will ensure their own economic
stability in the decades to come... and if it's something that has to come at the price of
the dollar's unquestioned dominance in global economics, so be it.
In a few minutes, I'm going to explain China's master plan to shelter itself from the
instability of a dollar-based global economy.
More importantly, I'm going to tell you about the commodity it's hoarding to make this
happen...
... And let you in on how private citizens just like you and me can use the resulting boom
market to personally profit.
But first, I want to show to you why the Chinese are doing what they're doing and
introduce you to the shadowy man — perhaps the most powerful economic official alive
today — who's pulling all the strings.
And with its rise, the U.S. gave the world the almighty dollar, which has been used as the
world's default reserve currency ever since.
For about four decades after the end of the war, this all worked very well for the U.S.
America was the world's biggest creditor, produced most of the world's goods, sold
most of the world's goods, and spent most of the world's money.
For most people drowning in debt, the first step to recovery is to limit spending.
However, the situation is a bit different when you're the world's biggest economy and the
owner of the world's reserve currency.
To pay off its debts, the U.S. usually just prints more money...
Millions upon millions of fresh new greenbacks — because that's what the world runs
on.
As a nation, it's this privilege alone that allows us to maintain the cushy lifestyle, the
public spending, the wars, and, most of all, the trillions in federal stimulus without
cutting into our wealth too much.
The dollar is, after all, too big and too stable to ever falter, right?
As we print more to cover our borrowing, the dollar's value — which is conjured out of
thin air during additional late-night sessions over at the national mint — starts to
approach zero.
Again, not exactly... You see, the closer the value comes to zero, the smaller the
fractional increments appear on a chart.
Going from 10% of the dollar's original 1900 buying power to 5% doesn't look that
significant on a chart tracking the last 110 years of devaluation, but rest assured it's still
a 50% hit to your wallet as the price of everything from bread to gas to iron ore doubles.
And it's all because the Fed keeps pumping out those dollars... more now, in fact, than
ever before.
It's exactly this policy that raises the dollar value of financial assets like gold and silver,
allowing people who are already rich (who don't need to spend all or most of their
income on expendables like gas and food) to become even richer as their hard assets
achieve higher dollar values.
But more to the point, it's this sort of thing that erodes the power of the dollar until, one
day, it's not so strong and stable anymore.
Dick Bove, vice president of equity research at Rafferty Capital Markets, sums it up well:
Generally speaking, it is not believed by the vast majority that the American dollar will
be overthrown, but it will be, and this defrocking may occur in as short a period as five
to 10 years... the United States will lose the right to print money to pay its debt.
After this frightening milestone is reached, things only get worse. According to Michael
Pento of Pento Portfolio Strategies:
The No. 1 security issue we have as a nation is the preservation of the U.S. dollar as
the world's reserve currency. It's a thousand times more important than a nuclear
bomb being tested by North Korea. It's a thousand times more important that we keep
the dollar as the world's reserve currency, and yet we are doing everything to abuse
that status.
Unfortunately, this view isn't uncommon in the financial industry. In fact, it's almost
universally accepted, as evidenced by Sam Zell, chairman of Tribune Company and
Equity Group Investments:
My single biggest financial concern is the loss of the dollar as the reserve currency. I
can't imagine anything more disastrous to our country. I think you could see a 25
percent reduction in the standard of living in this country if the U.S. dollar was no
longer the world's reserve currency. That's how valuable it is.
I would like to emphasize one thing: The unthinkable event isn't just going to happen —
it's already showing telltale symptoms...
To most Americans, the first and clearest sign of the dollar's demise is rising food
prices:
To investors, however, the most telling symptom is how Wall Street responds to any talk
of ending the 'quantitative easing' that has been pumping phantom dollars into the
system for the last five years.
The chart below shows S&P performance during the height of the post-crisis bull
market.
The line is color-coded, separated into periods of varying Federal Reserve policies
regarding the creation of new debt...
You're looking at 10%–15% losses, consistently, every time the flow of stimulus is
halted.
It happened in June 2013, when the DOW shed almost 700 points on mere whispers of
"winding down" the flow of money.
It shed another 1,200 points in February 2014 as the Fed underwent a changing of the
guard and "taper talk" continued.
The picture you should be getting in your mind now isn't a pleasant one.
And when debt grows to the point that mere interest payments become too much to
handle, that death spiral finally hits the ground...
... The U.S. defaults, and the dollar loses its status as the most reliable currency in the
world.
Five to 10 years — that would be an outlier. I would say 2015, 2016, that would be the
time when it becomes a particularly salient issue. When we're spending 30 to 50
percent of our revenue on debt service payments, we enter into a bond market crisis.
The dollar starts to drop along with bond prices. That would set off the whole thing.
— Michael Pento, president of Pento Portfolio Strategies
Now, think back to what I said about the Chinese and their $2 trillion in American dollars
stored away in their national banks.
Do you really think they're just going to sit around and wait for a massive chunk of their
wealth to evaporate because we dropped the ball?
The Chinese have done a spectacular job growing their giant, diversified economy over
the last decade or so.
They will not sit back and let us drag them into another recession just because we have
a debt addiction we can't shake.
And there's a man high up in the party ranks whose entire existence is dedicated to
making certain what's happening here never happens over there.
What he represents, more to the point, is the most formidable enemy to American
success and the American lifestyle since the reign of the Soviets.
Unlike the Soviets, however, Mr. Hucheng has a real chance of accomplishing his
mission.
It will be done with the same weapon America has used since the start of the Cold War
to get its policies passed: buying power.
Right now, Hucheng's central bank is using its buying power to gradually, carefully (so as
not to corner the market and drive up prices) acquire vast stores of the oldest and most
popular financial hedge in the history of mankind.
According to Bloomberg:
Official Chinese gold reserve holdings haven't been updated by the PRC's Ministry of
Commerce since 2008.
In the five years since, rate of acquisition has been improving... to say the least.
In March of 2013 alone, even as gold declined 10% below 2011 highs, the Chinese
acquired 223.5 tonnes, bringing the total for the prior 12 months to 1,206 tonnes.
The Chinese remain mum on exactly how much they have, but by any reasonable
interpretation of their policies, it's at least several times their official reserve figures
stated back in 2008.
In 2009, a State Council advisor in China stated that a group of officials and
economists from Beijing and Shanghai established a 'task force' to discuss measures
to add to the nation’s gold holdings. 'We suggested that China's gold reserves should
reach 6,000 tonnes in the next 3-5 years and perhaps 10,000 tonnes in 8-10 years,' the
advisor noted.
— GoldAlert.com
Given that they've been documented bringing in more than 1,200 tonnes in the last 15
months alone, many reputable sources place current Chinese gold reserves at
somewhere around 4,000–6,000 tonnes... putting them solidly in second place behind
the U.S.
But based on all the standard indicators, this is just the beginning.
Remember that China, aside from being the fastest-growing hoarder of gold on the
planet, is also the biggest foreign holder of dollars, with $2 trillion (along with $1.4
trillion in other currencies) in its coffers to add backbone to any financial dealings it
decides to engage in.
The more it has, the more wealth it stands to lose as each currency gradually inflates
away buying power.
Which means it needs to get rid of those greenbacks as fast as possible, converting a
depreciating asset into an appreciating one.
Well, they'd need 77,000 tonnes of it to fully convert their $3.4 trillion in foreign reserves.
Of course, nobody has all of their foreign reserves in gold... not even the U.S., which
keeps 76% of its reserves in gold.
For the Chinese, whose foreign reserves are 22 times greater than the U.S.'s, just
matching the U.S.'s 76% gold/foreign currency ratio would require 58,000 tonnes — or
about one-third of the total gold ever mined in the history of the world.
They can either sit and watch their cash inflate... or go out and snatch up all the gold
they can find.
Every day the Chinese central banks stay in these dollars, euros, and yen is another day
spent watching their wealth take this sort of trajectory:
While gold maintains this one, along the same timeline:
The one that lost 30% in 10 years, or the one that gained 400%?
Back in 1917, 13 ounces of gold was worth $260... Roughly the price of one Model T —
the car that made Henry Ford rich and his name synonymous with the American
automotive industry.
Today, that same 13-ounce nugget, now worth close to $17,000, would buy you a
respectable Chevy Volt.
$260 in cash, on the other hand, might get you an iPhone... With a 2-year service
contract, of course.
Putting all this together, you can see the Chinese plan to turn the yuan into the world's
premier gold-backed reserve currency isn't some sort of devious plot or conspiracy.
The American dollar will lose its stability and footing just as the British pound did before
it — only instead of a world war, it will be the post-Great Recession printing campaigns
that did it.
What you need to take away from this is that the Chinese hold more greenbacks and,
very likely, more gold than anybody besides the U.S. itself.
Their natural tendency, as the dollar loses buying power, will be to trade one for the
other.
Dollars for gold... A depreciating asset for an appreciating one... Putting more and more
tonnage of that yellow metal in their own version (or more likely, versions) of Fort Knox.
Right now, despite China's characteristic silence on the topic, the evidence all points to
just this:
Ending the reign of the dollar by backing the yuan with the world's biggest gold reserve...
... And succeeding the U.S. as the world's leading economic power.
It basically means that for the next couple decades at least, China will work day and
night to import and produce as much gold as their 1.3 billion sets of hands can.
And in case you think they'll get spooked by down-trending gold prices, think again.
While average gold demand in other major markets remains basically stable, China's
continues to grow.
In order to achieve even a reasonable gold/foreign exchange ratio (say, 50%), they would
need to be either importing or producing close to 3,000 tonnes per year for the next ten
years.
In 2012 — their banner year for gold acquisition — they only managed to produce/import
about 1,200 tonnes.
So even with acquisition rates hitting new records monthly, they're only getting warmed
up.
If gold demand in China continues to accelerate and becomes more comparable with
other major markets, we expect it to double in tonnage terms within the next decade.
To me, that sounds like something that, a few years from now, you'll kick yourself for
ignoring.
You see, with that much money to convert, Chinese investment bankers will rarely, if
ever, get to participate in the one sector of the gold market that has time and time again
beaten gold percentage gains by leaps and bounds.
I'm not talking about gold certificates or ETFs. I'm definitely not talking about physical
gold.
I'm talking the early-stage gold plays... The companies that make the big discoveries...
... The companies that excavate, produce, and refine the gold for the first time.
On the one side, you have the Chinese and their $3.4 trillion war chest, as well as a few
million private investors from around the world, looking for hard assets to hedge against
inflation and other destabilizing economic forces.
And on the other side is you... owning shares in a company that produces the gold itself.
When you invest in mining exploration companies, you are effectively paying for shares
of the properties they own and the unrefined gold within those properties.
You're investing in the future production of that gold — often hundreds of millions or
even billions of dollars' worth — but you're paying for shares in a company often valued
at less than $100 million... Sometimes even less than $50 million or $20 million.
If you think that sort of math is unique, you'd be wrong. It's actually somewhat common.
Companies with resource values tens or even hundreds of times their stock values are
out there, working day and night to pull that gold out of the ground and make their
owners filthy rich.
It's this kind of investment that was making overnight millionaires decades before the
first dot-com IPO ever saw the light of day.
But because these companies are so small and can only support a couple dozen, maybe
a couple hundred private investors at a time, the big bad Chinese don't get to participate.
Instead, China's monstrous demand for the metal guarantees that all those companies
searching for and digging up the gold will always have a willing buyer for the final
product once it's out of the ground.
However, you should know that finding the best of these companies isn't always easy.
You really need to know how the business works and, most of all, the people involved.
You need to understand which companies are winners and which are going nowhere.
An Industry Where
Everybody Knows My Name
My name is Nick Hodge.
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How do I know?
And:
And:
That's a lot of pretty profound praise for a guy who's only 30 years old.
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Organovo Holdings — 102.46% gains... Natcore Technology — 128.81% gains... DNI Metals
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"How to Break the Bank: The Best Way to Protect Your Wealth"
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Inside, you'll quickly get briefed on why this is a one-step strategy to making China's
buying spree work for you.
Because let me assure you, the numbers from this company's main project in central
Idaho are pretty staggering:
There are more than 4 million ounces inferred, boasting enviable precious metal
concentrations on easy-to-mine, low-risk, readily accessible, open pit sites.
They project a total cost per ounce of gold produced at less than $450 — meaning that
even in today's market, that's over $800 of profit for every ounce extracted once
production really takes off.
Now, to put this into perspective... This company's plan is to hit annual production of
390,000 ounces on this property — if it isn't bought out by a major gold producer first.
For a company whose stock still trades below $2 with a total market capitalization of
less than $160 million, this sort of revenue would make history.
Just think... almost twice the value of the company back in net revenue every year.
If the image I'm painting here seems aggressively optimistic, there's a reason for that.
This company's management team might be its most valuable asset yet.
You see, when gold properties of this caliber are properly managed, annual returns of
500%, 600%, even 1,000% are not unheard of.
Three- and four-figure gains might seem impossible in other sectors, but in precious
metals mining, they are the hallmark of talent and due diligence.
Now, I can't give you too many details on the company that owns this world-class gold
property, but I will say this:
If you had to choose a single, well-managed, perfectly balanced, cash-rich firm (this
company holds more than one-third of its book value in cash reserves, making it one of
the most liquid among its peers) to ride out the Chinese run on the global gold supply,
this is the one.
In fact, it would be a buy even without the Chinese working around the clock to hoard
the world's gold.
Well, it involves a crucial industrial metal... One whose name few know but is
nevertheless an endangered species today from overuse.
This metal is vital to modern industry because it's used in the production of everything
from ball bearings to firearms ammunition to fire retardants to industrial solder.
However, as seems to be happening more and more often these days, the Chinese are
already the world's biggest producer of this metal, with 90% of the market locked up.
Global supplies are starting to dwindle as the Chinese tighten their grip on exports.
And yet there's only one mine producing this metal in all of North America.
Well, the management team behind my new gold miner is seeing to it that all that
changes... because they plan to hedge their investments by producing this industrial
metal right alongside gold.
It's staring them in the face, it's worth billions, and there are almost no additional
production costs.
You remember that list of past recommendations I listed earlier? All percentage gains
were well into the triple digits.
I think that sort of record gives me the authority to say this one might be the biggest hit
yet.
Six months from now, chances are I'll be listing it first in the list of my best winners.
This one is so undervalued right now that its small silver reserves alone account for a
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Just understand this: A disconnect between net worth and market cap of this
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By the time this company's book value starts to reflect the value of the resources it
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Sincerely,
Nick Hodge
Founder and Publisher, Like Minded People
P.S. The recent completion of a massive test drilling program totaling close to 12,000
total meters drilled is clear evidence that we're nearing the end of the exploratory phase.
Cash reserves are in place, reported gold concentrations are as high as 9 grams/tonne,
and recent stock-buying activity indicates the same thing: we could see a ramp-up into
production as early as summer 2014. Do not miss what could be the last chance to get
in before it all begins.