PURE SPECULATION: Robin Bromby | August 31, 2009 Article from:...

PURE SPECULATION: Robin Bromby | August 31, 2009
Article from: The Australian
IN the days when governments believed that their currencies needed to be anchored to something real as a means of ensuring the worth of the paper and coin in circulation, everyone chose gold. Except China -- it backed its currency with silver.

Silver lies deep in the China psyche. The white metal was the standard for currency from the time of the Ming dynasty until November 4, 1935. It was abandoned then only because, as investors sought safe havens during the Great Depression, the price of silver rose sharply. China could not control the silver price, and large amounts of the metal flowed out of the country, causing financial dislocation internally.

In the past few years, China has deregulated gold sales internally and there has been much focus on demand for the yellow metal.

In 2007, Chinese gold consumption grew 60 per cent over the preceding year.

But now we see a video posted on YouTube -- a news item on the English service of China Central Television. You can watch while the newsreader extols the advantages of silver over gold. For one thing, the report says, it is a lot cheaper to buy into and, for another, silver has been undervalued for several years compared with gold -- in 2007, gold was 50 times more expensive than silver. At Friday's close, gold was 64 times more expensive per ounce -- more than double the historical ratio.

David Thurtell, Citigroup's commodities expert in London, has long been watching the relative performance of the two precious metals. So we asked him his present view, and he emailed this: "Still prefer silver to gold. I don't see inflation as a problem (and hence gold's upside is not as strong as some suggest) and silver is leveraged to an industrial recovery. Gold will suffer from what I see as an ongoing recovery in global equity markets and the world economy generally."

So, we hear you ask, where is all this going?

Among the many barely noticed announcements during the week was one from Malachite Resources (MAR). This company has spent the past few weeks promoting its Conrad silver project in northern NSW to Chinese investors. Conrad closed in 1957 due to low metal prices, with most of its silver still in the ground.

There's 9.6 million ounces of silver available, along with economic quantities of zinc, lead, tin and indium. Malachite says that it has signed a confidentiality agreement with one of China's largest state-owned mining groups, and other potential Chinese investors will be out to look at the project during September.

Malachite's news should be seen against the background that Chinese companies, while picking over our iron ore, base metals and coal, have shown little interest in gold investment here. But it seems silver is a different story.