ALBUQUERQUE, N.M.--(BUSINESS WIRE)--Santa Fe Gold Corporation (OTCBB: SFEG - News) today announced that it has entered into an agreement with Sandstorm Resources Ltd. (TSX-V: SSL - News) to sell a portion of the life-of-mine gold production from its Summit silver-gold mine, located in southwestern New Mexico. Santa Fe will receive a cash deposit of $4.0 million as well as ongoing payments for each ounce of gold delivered under the agreement.
A Floor Beneath the Gold Price
by Byron W. King
The UK Telegraph recently quoted at length Cheng Siwei, former vice chairman of the Standing Committee of the Chinese Communist Party. He explained how Beijing is dismayed by the "credit easing" coming out of the Federal Reserve.
"If they [the Fed] keep printing money to buy bonds," said Mr. Cheng, "it will lead to inflation, and after a year or two, the dollar will fall hard. Most of our [Chinese] foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen and other currencies." Mr. Cheng was referring to over $2 trillion of Chinese foreign reserves, the world's largest holding.
"Gold is definitely an alternative," said Mr. Cheng, "but when we buy, the price goes up. We have to do it carefully so as not to stimulate the market."
From Mr. Cheng's lips to God's ears - and now to ours. We have direct testimony from a high-level cadre that China, while cautious, is a key driving force in the gold market. China is buying.
We already knew that the Chinese are buying gold - and hoarding it. For example, China is the world's largest gold-mining nation. China mines more gold each year than the US or South Africa. Yet what are the net gold exports from China? Umm...zero. That is, China doesn't export gold (unless you buy a Panda coin or something.) Overall, in fact, China is a net importer of gold.
Sure, the Chinese use gold in industry, such as for electronics, jewelry and the like. But much of the rest of Chinese gold purchases go into state coffers, or into "off-books" storage. I'll bet that there's a lot of gold in "industrial stockpiles" in China, which are really just strategic monetary reserves for China's Central Bank.
The implication from Mr. Cheng is that the Chinese will not overbuy gold, which may be why the yellow metal has hovered just below the $1,000 mark per ounce in recent weeks. At the same time, it's more than likely that China will buy gold whenever there's a price dip.
The significance is that the Chinese seem to be prepared to establish a floor under any correction in gold prices. This limits the downside for well-positioned gold miners such as we hold in the Energy & Scarcity Investor portfolio.
Is there an upper limit to gold prices? Well, I expect to see the gold price rise, but slowly and in a long series of plateaus. I also expect to see pullbacks, usually based on world monetary and political events.
So we'll surely have some roller-coaster rides with the prices for the mining shares. How it all unfolds for us as investors will depend on when, and to what degree, monetary-driven inflation begins to bite into the economy. When it becomes totally obvious, it'll probably be too late to protect and preserve your wealth and purchasing power.
The problem for us in the West is that most of the politicians and major media just DO NOT GET IT. Or at least, the ones that do "get it" generally don't report things honestly to the citizens. They're probably afraid of what might happen when the citizens really figure out how much the political classes have screwed up the world.
So you see these rosy-sounding headlines about how the economy is "improving" and things are "getting better." Huh? What planet are these guys on?
The tide of inflation is rolling in. It'll lift the boats of the gold miners.
Byron W. King
for The Daily Reckoning
Is Santa Fe Now A Likely Future Takeover Candidate?
This is not a solicitation to buy Santa Fe Gold. It is a statement of the facts as we see them for your consideration. Whether you decide to invest in Santa Fe Gold may or may not make a difference to the stock, but it could make a big difference in your life, as it has already done for many others, if our belief becomes a reality: That Santa Fe will most likely ultimately be taken over at much higher prices than those of today and we have tried to outline the many compelling reasons as to why this may occur below, but you don't have to hear it from us.. The company already has an analyst buy rating of $3 per share: And that was before the two recent acquisitions, that have probably added at least another $2 per share to that target price, that is now gaining increasing coverage with rising gold prices.
And that's the point. Santa Fe is not only getting increasing coverage and recognition, it is delivering on all of its promises and all of its objectives thus far have not only been met, they have actually been exceeded and any time that happens with any company, it usually means that it represents a major buying opportunity that will likely have continuing surprises on the upside in the future. And the best part of it all might be in this instance you may not ever need to sell your stock as it just might be bought out from you in a takeover bid.