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AseanAffairs Magazine July - August 2010

New Philippines President Benigno “Noynoy” Aquino wins in a landslide election and promises to end poverty and fight corruption.

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Paul A. Ebeling, Jnr




It appears clear the some members of the U.S. Congress are playing a dicey game by scapegoating the Chinese yuan for political gains.

These congressmen, prompted by a need to appease American worker/voters frustrated by the loss of millions of jobs in the global financial crisis, and to woo constituencies in elections to be held later this year, are resorting to the tactic of blaming everything that’s bad in the USA on China. They are claiming that China’s foreign exchange policy is costing America jobs and threaten to impose tough trade sanctions against Chinese imports.

However, conveniently these same congressmen and women ignore the fact that an appreciating yuan cannot rebalance trade issues or help create jobs for American workers.

The trade imbalance, and high unemployment are deep economic problems that can only be addressed when the United States implements necessary structural reforms.

These congressional folk claim they are the champions defending the interest of the American people when in fact, they are politicians trying to swing voters by manipulating the Chinese yuan debate. In doing so, they divert the public attention from the USA’s serious domestic economic problems, which are caused in part by them and their quest for the seats in the U.S. Senate and Congress.

Their continuing irresponsible remarks, showcased and highlighted by the U.S. media, are perhaps meant to mislead the American public, and cloud the atmosphere of Chinese-USA economic cooperation.

China is the third largest export market for America’s goods, and it will likely become Number 1 sooner rather than later. A growing Chinese economy has really delivered substantial benefits to the American workers.

By “gaming” the national Chinese yuan debate, some American politicians may make short-term political gains, but on the other side of that coin the chance putting the long-term super powers bilateral relations in question.

The U.S. politicians that come out as anti-China by claiming the role of the strong defender of American interest, are pressing the U.S. government to take a radical stance on the issue of the yuan’s exchange rate, and by doing this they are constricting the Obama administration’s policy options.

At a recent Senate hearing, U.S. Treasury Secretary Timothy Geithner was questioned by a group of politicians, some of whom did not even refer to the Strategic/Economic Dialogue forum on major strategic and economic issues concerning the two world economic powers.

They approached the hearing as if this key dialogue did not exist. In the past, the U.S. government leaders said that they respect China’s sovereignty when it comes to its foreign exchange policy and they will seek to resolve the issue through dialogue and cooperation.

It is interesting that now in a midterm election year that some congressional leaders are gearing up for confrontation with China as perhaps the economic “enemy” of the USA based on a claim they are the real protectors of U.S. interest, and preach it from “high moral” ground.

We at Live Trading News believe that China and the United States are committed to building a overall positive and cooperative relationship in this 21st century. This relationship is of global significance requiring cooperation on wide-ranging economic issues.

I have been watching this currency issue for the past several years, and it is only part of an important and complex relationship.

Gold: 2010 Demand-Supply Analysis  

Gold’s appeal and function, including its value as an investment vehicle, are determined by the supply and demand dynamics of the world gold market.

On Demand

The world’s demand for gold is universal. In 2008, East Asia, India, and the Middle East accounted for 70 percent of world demand.

Fifty-five percent of demand is from five countries: India, Italy, Turkey, USA and China, each market driven by a different set of economic and cultural factors. Demographic and economic changes in many of the key consuming nations are likely to produce new patterns for demand.


Jewellery accounts for more than 67 percent of gold’s demand, that’s about US$60 billion annually, making jewellery one of the world’s largest consumer goods. The USA is the largest market for gold jewellery. India is the largest consumer in volume terms, accounting for more than 24 percent in 2009.

Indian gold demand is supported by cultural and religious traditions which are not directly linked to global economic trends.

The economic crisis and the consequent recessionary pressures that developed over 2007 and 2008 had a significant negative impact on consumer spending resulting in the reduced volume of jewellery sales, particularly in western markets. Demand for jewellery is driven by a combination of affordability and desirability by consumers, and usually rises during periods of price stability or gradually rising prices, and declines in periods of price volatility.

A steadily rising price reinforces the inherent value of gold jewellery, which is an intrinsic part of its desirability. Jewellery consumption in the developing markets prior to the crisis in 2007-2008 was expanding rapidly following a period of sustained decline. Several countries, in cluding China, offer clear and considerable potential for future growth in jewellery demand.

Investment demand

A large part of gold’s investment demand is transacted in the over-the-counter market, so is not easily measured. But there is no doubt that identifiable investment demand in gold has increased considerably in recent years.

Since 2003 investment has represented the strongest source of growth in demand, with an increase in the last five years in value terms to the end of 2008 of around 412 percent (approximately US$32B in 2008).

There are many reasons why individuals and institutions invest in gold. First and foremost: a positive price outlook based on the expectation that the growth in demand for the precious yellow metal will continue to outpace supply, providing a sound reason for investment. Other key drivers for investment demand are all based on gold’s abilities to insure against uncertainty, instability and risk.

Investment in gold takes many forms. Investors can combine two or more of these for flexibility. The distinction between buying physical gold and gaining exposure to movements in the gold price is not always well defined since it is possible to invest in gold bullion without actually taking physical delivery of same.

The growth in investment demand has been mirrored by corresponding developments in ways to invest and there are now a wide variety of investment products to suit both the private and institutional investor alike.

Industrial demand

Industrial, medical and dental uses account for about 11 percent of gold demand, an annual average of more than 440 tonnes from 2005 to 2009.

Gold’s high thermal and electrical conductivity, plus its outstanding resistance to corrosion, explains why more than 50 percent of all industrial demand arises from its use in electrical components.

Gold’s use in medical applications has a long history and today, various biomedical applications make use of its bio-compatibility, resistance to bacterial colonization and corrosion, and other attributes.

Research is daily finding new uses for Gold, including its use as a catalyst in fuel cells, chemical processing and controlling pollution.

The potential to use nano-particles of gold in advanced electronics, glazing coatings, and cancer treatments are all exciting areas of scientific research. For the latest news on the industrial markets and growing uses for gold visit (

On Supply
Mine production

Gold is produced from mines on every continent except Antarctica, where mining is strictly forbidden.Operations range from the miniature to the “huge”. There are several hundred operating gold mines worldwide, not including mining at the very small-scale, artisanal and the “unofficial” level.

The level of global mine production is fairly stable, averaging approximately 2,485 tonnes per year over the last 5 years. New mines that are being developed serve to replace current production, not causing any significant expansion in the total global tonnage.

There are long lead times for gold production, with new mines often taking up to 10 years to come on- line, this means that mining output is non-elastic and unable to react quickly to a change in price outlook.The incentives promised by a sustained price rally, as experienced by gold over the last eight years, are not easily translated into increased production

Recycled gold (scrap) 

Noting that gold ore production is not elastic, recycled gold/scrap ensures there is a source of easily traded supply when needed, and this helps to stabilize gold’s price.

The value of gold means that it is economically viable to recover it from most of its uses; at least, that is, where it is in a form that is capable of being extracted, then melted down, re-refined and reused. Between 2005 and 2009, recycled/ scrap gold contributed an average 39 percent to annual supply flows.

Central banks

Central banks and supra-national organizations like the International Monetary Fund currently hold just about 20 percent of global above the ground stocks of gold as reserve assets. This amounts to about 30,000 tonnes, dispersed across 110 organizations. On average, governments hold about 10 percent of their official reserves as gold, although the proportion varies country-bycountry.

A number of central banks have increased their gold reserves in the past 10 years or so, however, the sector as a whole has been a net seller since 1989, contributing an average of 447 tonnes to annual supply flows between 2004 and 2008. Since 1999, the bulk of these sales have been regulated by the Central Bank Gold Agreements which have served to stabilize sales from 15 of the world’s biggest holders of gold.

Gold sales from official sector sources have been diminishing in recent years. Net central bank sales amounted to just 246 tonnes in 2008.


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