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China Will Corner the Gold Market Thursday, November 16, 2006 Dear Subscriber, If China were to lay its $1 trillion in reserves end-to-end using dollar bills, the trail of paper would stretch for 96,906,565 miles. That�s enough to wrap around the widest part of the earth 3,876 times! Clearly, Beijing�s coffers are overflowing. In fact, China has the largest foreign reserves of any country in the history of the planet. Compare that to Washington, which owes nearly $9 trillion, not counting contingent liabilities. Whose paper currency do you think should have more purchasing power? Naturally, the yuan. Yet that�s not the case � the dollar remains stronger. But not for long. Here�s why ... China Is Going to Corner The World�s Gold Market I warned of this nearly three years ago, but now the signs are even clearer: Over the next few years China is essentially going to corner the world�s gold market. In the process, the price of the precious yellow metal could soar to well over $1,000 per ounce, and eventually to more than $2,000 an ounce. ARE YOU ON TRACK FOR RETIREMENT? Here�s an innovative way to help you get there ... one you may not have thought of ... � 10 things every investor needs to know about dividend-paying stocks. � How to select the right stocks for safe, steady income. � What strategies best harness the incredible nest-egg-building power of dividends. � Three areas that hold hidden promise for yields, and 17 specific stocks to look at. � And more ... Mind you, this won�t be intentional on China�s part. Beijing will not set out to consciously �corner� the gold market. But, in effect, that will be the end result. Take it from me. I�ve met with central bankers, banking regulators, and gold traders in China. I know their views on the yuan and gold. I�ve been told that China will be buying up huge amounts of gold. You see, Beijing knows that the rest of the world perceives China�s economy as loaded down with hidden debts and plagued by corruption. So as China progresses toward superpower economic status, authorities in Beijing want the country�s currency to be a world-class, stable medium of exchange. They envision the yuan as a major international currency some day, with as much (or more) status than the U.S. dollar. That�s why they�re going to back the yuan with gold ... loads of it. Consider this: China has a mere 1.3% of its reserves in gold (600 tons). That�s the lowest of any industrialized economy! To put it into perspective ... � The U.S. has nearly 75% of its foreign reserves in gold. � The European Union has 26.5% of its reserves in gold. � Lithuania, Mozambique, and even tiny Nepal all have more of their reserves in gold than China. Tonnes % of Tonnes % of reserves reserves United States 8,133.5 74.5% Nigeria 21.4 1. 1% Germany 3,423.5 61.4% Ukraine 17.3 1.9% IMF 3,217.3 1) Belarus 16.5 24.6% France 2,768.0 62.9% Cyprus 14.5 5.9% Italy 2,451.8 66.1% Korea 14.3 0.1% Switzerland 1,290.1 42.1% Brazil 13.7 0.4% Japan 765.2 1.8% Czech Republic 13.5 0.9% ECB 662.9 25.8% Netherlands Antilles 13.1 34.9% Netherlands 654.9 57.3% Jordan 12.7 4.6% China 600.0 1.3% Cambodia 12.4 19.7% Spain 457.7 48.9% Mongolia 8.9 22.3% Taiwan 423.3 3.2% Ghana 8.7 8.9% Portugal 402.5 80.3% Latvia 7.7 4.4% Russia 385.5 3.0% El Salvador 7.3 6.3% India 357.7 4.4% Myanmar 7.2 13.8% Venezuela 357.1 23.3% CEMAC 7.1 2.1% United Kingdom 310.3 14.1% Colombia 6.9 1.0% Austria 290.8 43.3% Guatemala 6.9 3.5% Lebanon 286.8 31.0% Macedonia, FYR 6.8 8.1% Belgium 227.7 34.9% Tunisia 6.8 3.5% Algeria 173.6 4.9% Lithuania 5.8 2.7% BIS 165.8 1) Ireland 5.5 11.9% Sweden 161.8 12.1% Sri Lanka 5.2 3.6% Philippines 146.3 14.0% Slovenia 5.1 1.2% Libya 143.8 5.8% Bahrain 4.7 1) Saudi Arabia 143.0 11.3% Nepal 4.0 4.8% Singapore 127.4 2.0% Mexico 3.5 0.1% South Africa 124.1 10.5% Canada 3.4 0.2% Turkey 116.1 3.9% Aruba 3.1 18.1% Greece 108.1 76.2% Hungary 3.1 0.3% Romania 104.8 8.4% Kyrgyz Republic 2.6 7.7% Poland 102.9 4.3% Luxembourg 2.3 17.1% Indonesia 96.4 4.8% Albania 2.2 2.8% Thailand 84.0 2.9% Hong Kong 2.1 0.0% Australia 79.8 3.4% Iceland 2.0 4.0% Kuwait 79.0 14.5% Papua New Guinea 2.0 4.0% Egypt 75.6 6.7% Mauritius 1.9 2.8% Denmark 66.5 4.3% Trinidad and Tobago 1.9 0.7% Pakistan 65.3 10.3% Mozambique 1.7 2.9% Kazakhstan 59.8 8.8% Yemen 1.6 0.5% Argentina 54.7 4.2% Tajikistan 1.3 14.0% Finland 49.1 13.8% Suriname 1.1 9.9% Bulgaria 39.8 7.6% Cameroon 0.9 1.5% WAEMU 36.5 9.7% Honduras 0.7 0.5% Malaysia 36.4 0.9% Qatar 0.6 0.2% Slovak Republic 35.1 5.4% Dominican Republic 0.6 0.6% Peru 34.7 4.8% Gabon 0.4 0.8% Bolivia 28.3 21.5% Malawi 0.4 5.3% Ecuador 26.3 22.3% Central African Rep 0.3 4.7% Morocco 22.0 2.4% Chad 0.3 2.8% Just to up its reserves to 5% in gold, Beijing would have to purchase $50 billion worth. That could easily send the yellow metal skyrocketing to more than $1,000 an ounce. And if China were to match roughly half of the gold reserves held by the United States, it would have to buy another $300 billion worth. That kind of buying would send gold to more than $2,000 an ounce. We�re getting closer and closer to the day when this starts unfolding. Why? A few months ago, China announced that it will plow at least 2.5% of its trade surplus into gold. That�s a staggering $2.5 billion of brand new demand for gold every year. Then, last week, People�s Bank of China governor Zhou Xiaochuan said China�s government is seeking alternative investments to risky U.S. dollars. My view: China has probably already started purchasing gold. That�s one of the reasons gold is now trading in the $625 range, well above important support levels on the charts between $590 and $600 an ounce. This is why I suggest getting more aggressive in gold right now. By the time Beijing officially declares that it�s buying gold, it will be too late. Another Reason Why Gold Can Triple, and Four Ways to Profit In terms of the purchasing power of today�s dollars, gold reached $2,176 in 1980. But right now, it�s trading near $625 an ounce, less than one-third of its inflation-adjusted high. This alone suggests that gold has much more upside. Even if gold got halfway to its inflation-adjusted price, it would zoom to more than $1,000 an ounce, more than a 50% gain from current levels. So is gold undervalued? You bet it is! Just to catch up with inflation, it should soar above $2,000 an ounce. China�s buying would just be the icing on the cake. Live Like a Millionaire without the Price Tag ... Stop paying crazy high prices and stop settling for puny profits, poor service and second-rate health care! In this �must read� report, discover the three shocking secrets that entitle you to: 1. Triple your nest egg in just 11 months with complete safety. 2. Block cancer and heart attacks for your whole life � at a cost of 15 cents. 3. Laugh at high gas prices as you get $12 cash back every time you fill up your car. . I believe gold is still one of the best bets out there, loaded with huge profit opportunities. No matter what aspect of the market I examine, I see much, much higher prices. So, without further delay, here are four ways to get a stake in gold ... First, you can buy bullion. For small amounts, a convenient vehicle is 1- and 10-ounce gold ingots. It might be a good idea to own some physical gold this way, but don�t go overboard. It�s too much of a pain in the butt to transport and store it. Second, I think the streetTRACKS Gold Shares (GLD) exchange-traded fund is a �must-own� investment. Each share represents 1/10 of an ounce of pure gold. And the metal is stored for you! This is the single best way I know of to own physical gold. Third, consider gold mutual funds like DWS Gold and Precious Metal (SCGDX) and Tocqueville Gold (TGLDX). You can pack them away, with a view toward holding them for at least a couple years. In my view, these funds could double, triple, even quadruple, over that timeframe. Fourth, you can invest in individual gold stocks. But be careful here. The irony of today�s bull market in gold is that some gold mining companies may actually go out of business as the price of gold soars. Reason: They still hedge too much of their gold production and/or reserves. As I always remind my Real Wealth Report subscribers, you need to be selective. Best wishes, Larry For more information and archived issues, visit http://www.moneyandmarkets.com About MONEY AND MARKETS MONEY AND MARKETS (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Amber Dakar, Monica Lewman-Garcia, Wendy Montes de Oca, Kristen Adams, Jennifer Moran, Red Morgan, and Julie Trudeau. Attention editors and publishers! Money and Markets issues can be republished. Republished issues MUST include attribution of the author(s) and the following short blurb: This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. 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