Gold News

The AIIB, China's $4 Trillion & Metals Prices

Whether or not a threat to US dominance, the new AIIB looks good for metals...
CHEN LIN writes the popular stock newsletter What Is Chen Buying? What Is Chen Selling? published and distributed by Taylor Hard Money Advisors, Inc.
Chen Lin now says the smart time to look for the next big gold mining company is when everyone else has left the sector. With China making moves to invest trillions in commodity-hungry infrastructure, Lin is traveling the world looking for the companies with the right projects in the right place making all the right moves. In this interview with The Gold Report, he shares some of the insights from his recent travels and discusses three companies with potential to be the next Gold Super Star...
The Gold Report: You've written that the China-led Asian Infrastructure Investment Bank (AIIB) could lead to a boom in commodities. We recently saw that South Korea is joining a number of European countries and signing on, despite US reservations. Do you see this as a threat to US fiscal dominance?
Chen Lin: I think this is a first step for China. The country has a huge reserve, $4 trillion, much more than it needs on the balance sheet to stabilize its currency. The rest is wasted, collecting no interest. China made some huge mistakes in the past through poor acquisition decisions because of faulty lending standards. This is a sign that it has learned from its mistakes and wants to make the most of the trillions it has to loan out right now. The bank will operate close to international standards, and because it has many nations involved already, defaulting loans will include less risk.
This is a test. If it is successful, it can expand to Africa, South America, even Europe and North America. China has trillions of Dollars sitting, doing nothing. It wants to find a way to lend money it can almost guarantee to get back and then put the money to use in the form of development. China has a huge infrastructure network capacity, requiring steel and cement. This creates jobs, which is good for the economy. That was the thinking behind the announcement.
If the AIIB is successful, it will be a big boon for base metals, energy, platinum and palladium sectors. It may even boost silver demand and prices because of its industrial use. I don't think it will have too much impact on gold, though.
TGR: Does that include copper? It has been below $3 per pound all year.
Chen Lin: Yes. Copper is integral to electric railroads and power lines, so copper prices could be positively impacted.
I have been watching copper closely for quite some time. Last year I was telling every gold company I invest in to hedge copper when it was over $3 per pound. I think China's growth is slowing down. Copper is very much related to Chinese housing. China has a law that every new house has to use new copper for water pipes instead of recycled copper for safety reasons. So all this copper has been going into new buildings in China, many of which are sitting empty. When housing construction slows down, copper demand goes down. I saw that coming for a while. I have not been very bullish on copper and am still not very bullish on copper going forward. This Asian development bank could change that potentially, but we have to watch.
TGR: What commodities are you buying and selling to prepare for the rest of 2015?
Chen Lin: Right now, I'm still more focused on energy. If my calculation is right, then 2015 will be the bargain year for energy. For gold, the year to buy may be 2016 or 2017. It may be sooner, but you need to watch closely. Sometimes, the bottom is hard to tell exactly.
TGR: Do you feel that the Yukon government has become more mining friendly recently? 
Chen Lin: Last year, I met with Yukon Premier Darrell Pasloski. He told me, "Look, Chen, in the Yukon, there are only two industries – tourism and mining." So I say, yes, the Yukon government is trying to work as hard as it can to create jobs, and that will benefit the mining industry.
TGR: Is there one mining story that people will be talking about 5 or 10 years from now because they wish they had seen it coming?
Chen Lin: With every recession, every crash, there are always a few winners that come out of it. If companies play their cards well, they will have the chance to become winners after this downturn.
TGR: You called this the opportunity of a lifetime in the energy investment environment right now. Do you feel the same way about gold or are we at a different stage in the gold price life cycle?
Chen Lin: I'm in a wait-and-see mode. Since Goldman Sachs made the statement that gold will reach $1000 per ounce by the end of 2016, it has created some buying opportunities for us. So for now, I'm studying companies.
The Chinese government is trying to buy as much gold as it can without impacting the gold price. It probably is very happy with our friend Goldman. Eventually, the tide will turn. The timing of gold's rebound will depend on a lot of factors, which I'm watching carefully. Right now, my best guess is probably 2016-2017.
TGR: Thank you for your time, Chen.

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