Thai Guru's Gold und Silber ... (Informationen und Vermutungen)

Der Fonds
Goldfondsmanager unbeirrt optimistisch
Dienstag 4. Januar 2005, 15:08 Uhr

Erst der Höhenflug, dann der Fall: Der PEH-Q-Goldmines (WKN 986 366) hat von 2001 bis 2003 satte Gewinne eingefahren, 2004 machte er jedoch ein Minus von 29,8 Prozent und ist damit laut Rating-Agentur Morningstar der schlechteste Fonds des vergangenen Jahres. DER FONDS.com fragte Fondsmanager Martin Siegel nach den Gründen für die schlechte Performance und den Zukunftsaussichten seines Goldfonds.

DER FONDS.com: Der PEH-Q-Goldmines fährt Achterbahn (Xetra: 500740.DE - Nachrichten)
ANZEIGE
. Wie erklären Sie die aktuelle Talfahrt?

Martin Siegel: Mein Fonds ist hauptsächlich in kleinere und mittlere Unternehmen investiert. Mit dieser Strategie ging es von 2001 bis 2003 schnell nach oben, entsprechend groß war im vergangenen Jahr jedoch auch die Reaktion nach unten. Der Goldpreis ist im ersten Halbjahr 2004 gefallen, anschließend ging es bis zum Jahresende wieder bergauf. Insgesamt legte der Preis auf Dollarbasis leicht zu. Auf diesen Anstieg haben die kleineren Unternehmen einfach nicht so schnell reagiert wie die großen. Darum hinke ich den anderen Goldfonds hinterher.

DER FONDS.com: Ein Unze Gold kostete 2004 im Schnitt rund 400 Dollar, zwischenzeitlich stand der Preis sogar bei 450 Dollar. Das ist ein Spitzenwert, wenn man bedenkt, dass der Goldpreis 2001 bei 271 Dollar startete und erst Ende 2003 überhaupt die 400-Dollar-Grenze durchbrach. Warum hat das die Performance Ihres Fonds nicht angeheizt?

Siegel: Auf US-Dollarbasis sehen wir in der Tat ein 16-Jahres-Hoch, doch durch die Dollarschwäche sank der Goldpreis in anderen Währungen. Auf Eurobasis sank der Goldpreis 2004 um 3 Prozent, in australischen Dollar blieb er etwa gleich, in kanadischen Dollar legte er ebenfalls um etwa 3 Prozent zu. Gleichzeitig stiegen jedoch die Kosten der Goldminen enorm, vor allem durch steigende Stahl- und Energiepreise. Durch die steigenden Kosten bei einem fast stagnierenden Goldpreis in heimischer Währung, fielen die Gewinnmargen, was auf die Aktienkurse der Goldproduzenten drückte. 2004 war damit entgegen der landläufigen Meinung ein schlechtes Goldjahr.

DER FONDS.com: Und wie sind Ihre Einschätzungen für 2005?

Siegel: Dieses Jahr will ich mindestens den Verlust des vergangenen Jahres wieder ausgleichen. Ein Plus von 50 Prozent halte ich durchaus für realistisch.

DER FONDS.com: Auch in den Vormonaten sind sie von einem Plus von bis zu 40 Prozent ausgegangen, doch es kam anders. Warum sind Sie immer noch so optimistisch?

Siegel: Ich dachte vergangenes Jahr, dass sich der Goldpreis von der schwachen Entwicklung des Dollars abkoppelt, was leider nicht passiert ist. In diesem Jahr rechne ich jedoch mit einem Anstieg des Goldpreises in allen Währungen. Der Dollar wird sich stabilisieren und die Nachfrage nach Gold weltweit steigen. Ich erwarte im Jahresverlauf zudem nachlassende Verkäufe von europäischen Zentralbanken, dafür eine stärkere Nachfrage von Privatanlegern, beispielsweise aus China und Indien. Zudem glaube ich, dass institutionelle Investoren wie Hedge-Fonds Gold als echte Alternative entdecken und vermehrt einsteigen werden. Noch ist der Goldsektor relativ unentdeckt, und es gibt noch viel Potenzial.

DER FONDS.com: Haben Sie Ihr Portfolio nach der Schlappe in 2004 umgestellt?

Siegel: Ja, durch die schlechte Rand-Entwicklung habe ich mein Südafrika-Engagement um 10 Prozent reduziert. Dafür bin ich in Kanada verstärkt eingestiegen. Außerdem habe ich einige kleinere Unternehmen verkauft und auf größere Firmen umgesattelt. Aktuell machen australische Firmen mit etwa 45 Prozent den Löwenanteil des Fondsportfolios aus. Sie sind mit einem Kurs-Gewinn-Verhältnis von rund 15 noch unterbewertet. Kanadische Firmen folgen auf Platz 2 mit 32 Prozent und südafrikanische mit 15 Prozent. 2 Prozent des Portfolios sind in den USA investiert, ein Prozent in Großbritannien, der Rest ist Cash. Damit fühle ich mich gut aufgestellt für 2005.

INFO: Die PEH Wertpapier AG (WKN 620 140) ist aus der 1981 gegründeten PEH Wertpapier Research GmbH, Oberursel, hervorgegangen und seit 1999 am Geregelten Markt Berlin notiert. Die PEH bietet neben der Betreuung institutioneller Anleger auch fondsbasierte Vermögensverwaltungskonzepte an und legt zudem eigene Investmentfonds auf. PEH steht für die Initialen des Firmengründers Peter Edgar Huber. (Quelle: DER FONDS)
http://de.biz.yahoo.com/050104/337/4d08l.html

extrel
Vielen Dank für die sehr gute und ausserordentlich lange Übersetzung des äusserst interessanten Artikels!!! Ich denke das hat Dich richtig Zeit gekostet.

Leider geht Deine Arbeit in den anderen unreflektierten Postings die mit höchster Wahrscheinlichkeit nicht mal die Verfasser selbst lesen unter.

Schiebs doch noch in einen eigenen Thread, damit Deine Arbeit nicht so einfach unter geht?

Vielleicht wäre dann damit auch ein neuer Thread gestartet in dem nicht jedes Thema sich sofort wieder verliert.

Smartie

January 4 – Gold $428 down 60 cents – Silver $6.41 down 6 cents

Gold Fundamentals More Bullish Than Ever

When I learn something new-and it happens every day-I feel a little more at home in this universe, a little more comfortable in the nest. ..Bill Moyers

GO GATA!!!

We may have had a very significant day as far as gold is concerned. As expected, gold followed through on the downside, dropping to $423.60 before rebounding. With gold blowing through key support between $430 and $433 yesterday, long-term gold longs continue to give up the ship. However, the physical market remains on fire and supported the market on the break. The gold fundamentals are more bullish than ever.

Notables:

*Goldman Sachs was a major buyer today, covering short positions.

*They followed a substantial GLD buy yesterday:

Hi Bill:
Looks like the 15 tonnes sold on Dec 7th have now been covered at a huge profit of $20/oz or about $10 million total. Not a bad Xmas present for someone well connected. Below is comment from Russ Winter, Cheers from
Auckland Ed

Russ Winter wrote:
Actually I think the gold market got today exactly what I was hoping for and looking for, namely a large knee jerk hedge fund liquidation. And look who stepped up to take the real physical gold, the GLD ETF adding a whopping 14.3 tonnes today.
http://streettracksgoldshares.com/us/value/gb_value_usa.php

This is very bullish in my book even if it does sell off as low as the 200 MA.

***

Make what you wish of The Gold Cartel’s Goldman Sachs and GLD buying at the same time after selling at the same time.

*The gold open interest only fell 7743 contracts to 310,992. The Comex floor was looking for 20,000 contracts and thought the number could go as high as 30,000 contracts. This would’ve indicated a "washout" to them.

We probably got a good deal of the rest of that washout today. However, more important from my standpoint is yesterday’s number probably included a sizeable number of NEW spec SHORTS. Today most likely brought in more too. This should show up in the next COT numbers. With the cash market so strong and a number of specs going short, gold could really take off by the end of next week.

Late this afternoon our Comex floor source called and felt the liquidation is just about over and gold should move back up shortly.

*This recent bullion bashing by The Gold Cartel has most gold investors completely demoralized (see example below).

*There is more talk of $400 gold than $450 gold these days.

What is so remarkable is how there is so little talk out there regarding the gold fundamentals. As Andrew Hepburn mentioned at the New Orleans Investment Conference, most of the gold market commentary outside of the GATA camp amounts to a bunch of "drivel." Besides inane chatter why gold moves up and down on a daily basis, most of the commentary centers around cycles, technicals, gold as it relates to the dollar, etc. That is fine and dandy and much of it often very useful. However, when there is no understanding of the basics of what the gold market is really all about, they won’t add up to bupkes as far as realizing what is coming and why as far as the price is concerned.

Thank goodness for John Brimelow and thank goodness for the GATA camp. Without knowing the real gold story; the true nature of the demand for gold; the size of the bullion bank short positions; the yearly supply/demand deficits; and how The Gold Cartel has suppressed the price many hundreds of dollars per ounce below its proper equilibrium price level, I think I would have run for the hills too as far as gold is concerned. Fortunately we do know.

At the same time, gold mine supply is dropping at the very time the central banks are reaching to the bottom of their bins for available gold supply required to suppress the price. Meanwhile, demand for gold is soaring around the world. With Iraq a building catastrophe and the US financial house in continued disarray, we have the recipe for a gold price explosion, not a collapse.

Gold should make a U-turn above $433 by the middle of next week, or sooner.

The silver open interest fell 185 contracts to 100,401.

I am trying to make some headway regarding understanding silver. The way it has traded the past year vis-à-vis the information passed my way has made little sense. The same with the market action. Silver runs up to $8 on supposedly very bullish fundamentals and then collapses for no apparent reason.

Silver weekly
http://futures.tradingcharts.com/chart/SV/W

Worse, from my standpoint, it always seems to tank after I receive the most bullish input. The well advertised yearly supply/demand deficit never seems to matter much, nor the input I receive. Many in our camp expect the very bullish fundamentals to take hold, myself included. Yet, we have felt that way for some time.

In mid-December we heard how tight the supply was in Europe. Just the other day we heard how it was difficult to fill a $10 million order for the Saudis in Europe. Then, the silver price falls apart. My query to our STALKER source is why don’t these people take delivery of silver on Comex and ship it to Europe? It makes no sense to say you can’t locate silver and then have the price collapse as if the sellers of the stuff can’t give it away. The European silver people can buy all the silver they want on the Comex and ship it overseas. Perhaps I will have something coherent for you on this soon.

On another front the news regarding China and silver is extremely exciting. Voila:

Hi Bill
After reading your remark some days ago about checking with your sources about silver, I called my friend. He says that their information is right and China did secure 75% of world production.

He added that their chief investment officer, which he considers to be a very wise man who has a high record of success, forecast for the next 3 years, stagflation with the dollar losing 30% to 50% more and the interest rate at 10%. He is recommending buying commodities, all of them, including precious metals.

The silver fall is very puzzling both to me and my friend, who keeps buying silver for himself. My guess is (and that is only a guess) that as usual we are seeing an engineered sell off so that the big forces can cover their shorts. We saw it many times and the pattern is quite clear.

Other than that, I’m clueless.

Thanks for all the work

***

This Café source is very reliable and he is confirming what we learned last spring – that China has tied up 75% of the 2005 silver production through various derivatives maneuvers, ext. These "maneuvers" will assure them they will receive their supply.

Assuming this information is as solid as I believe, there is NO WAY silver will not explode as 2005 progresses…the market being as tight as it is. Now whatever supply is still left has been scooped up by the Chinese.

Silver should not move up gradually either. Once this latest liquidation phase is over, following the recent sell-off debacle, silver should begin to move back up very quickly and shoot for $10 by this spring. Silver is a volcano ready to explode.

We will keep our eye on the Comex silver stocks as a key the world silver market is going to dry up completely from a supply standpoint. If those stocks go below 100 million ounces, it ought to be the tip-off a major silver squeeze is on the way.

Houston’s Dan Norcini smells what I do re what has transpired in gold and silver the past two days.

Hi Bill:
Did you catch the Open interest release this morning?

Silver showed very little reduction in yesterday's massive sell off indicating a HUGE amount of new shorts were put on in addition to the general liquidation. Gold showed a fair amount of liquidation but nothing like what I was expecting. I was looking for something in the range of 15,000+. Instead we got only around 8,000 or so. Same story there - apparently lots of fresh shorts were put on yesterday as well as long liquidation.
Dan

Gold and silver are both set up to move sharply higher in the weeks ahead.

The John Brimelow Report

Physical demand has gone crazy" - Mitsui

Tuesday, Jan 4, 2004

Indian ex-duty premiums: AM $8.86, PM $9.32, with world gold at $429.30 and $426.50. Very high; suggestive of heavy Indian demand.

The Shanghai Gold Exchange prices imply premiums to world gold of $3.59 to $4.00, levels last seen in the late April/ early May downswing last year.

Mitsui-London remarks today

"Physical demand has gone crazy, and now everyone is looking for supplies for India, Turkey and the Mid East."

The second attachment is a bar chart of Turkish imports, courtesy Refco Research. While the magnitude of the off take acceleration is obvious, what is actually more impressive is the contrast with previous November/December periods. Usually this is a very weak phase of the year.

Japan re opened for a half day to find world gold down over $15 from the close on December 28th. Naturally this led to limit down moves. All contracts closed down the 40 yen limit, although the equivalent of 7,211 Comex lots did trade, with open interest up 1,335 Comex equivalent. Some anticipate Japanese buying.

NY yesterday traded a very heavy 93,540 lots, with open interest slipping 7,743 contracts (another 24 tonnes.) UBS judiciously remarks:

"Since last Tuesday…Comex open interest indicates that at least 1.23moz of long liquidation took place on Wednesday and Thursday; Friday’s price action implies more speculative selling …The net long gold position probably stands at about 15-16 million ounces, the smallest long position since the end of October."

Gold since Christmas has twice come in for very heavy bouts of selling in New York (today is possibly a third, with an estimated 71,000 contracts trading). This has had the effect of adversely altering the relationships the metal has been recently showing with older parameters. HSBC says

"it is difficult to explain the recent fall in gold prices from over USD450/oz to under USD430/oz simply by reference to currency moves alone…based on an exchange rate of 1.35 against the euro, and on the trading relationship which has been in place since August 2003, the gold price should be around USD445/oz."

Gold’s fall preceded and exceeded the fall in the Euro, and preceded, at least, the punishment base metals have taken today. Probably these developments are related. The fact remains premiums and anecdotes in the physical market resemble serious lows, not highs.

The noted bear points out that the standard measures of public involvement in gold were down year-on year, yet gold was up. He asserts this is puzzling, yet the explanation is obvious: strong off take by the consuming countries. He does not mention Turkey, about which in fact Mitsui is very well informed by direct involvement.

JB

CARTEL CAPITULATION WATCH

The DOW flopped 99 to 10,671, while the DOG barked its way down 44 to 2108.

The March DOG chart is looking bowwowish again:
http://futures.tradingcharts.com/chart/NA/X

Been hard for me to understand why the DOW and DOG have done what they have considering what looms on the horizon. The good news is behind the market, not ahead. Trading in the weeks ahead could be very nasty on the downside.

The dollar rose 1.29 to 82.79. The euro lost 2.08 to 132.87, while the pound gave up two points to 187.16.

US economic news:

10:00 Nov. Factory Orders reported 1.2% vs. consensus 1%
Prior reading revised to 0.9% from 0.5%.
* * * * *

The big news of the day was the release of contents of the December FOMC minutes:

14:01 FOMC minutes reveal that committee still saw rates as too low to keep inflation stable
The minutes from the 12/14 meeting also noted "potentially excessive risk-taking" in markets.
* * * * *

14:04 Follow-up: FOMC minutes indicate the policy makers still believed rates were too low
The conclusion of the minutes from the 12/14 meeting state that "even with this action, the current level of the real funds rate target remained below the level it most likely would need to reach to keep inflation stable and output at its potential".
* * * * *

4:13 Follow-up x2: FOMC notes potentially excessive risk-taking in financial, housing mkts
The minutes show that "some participants" were concerned that "the prolonged period of policy accommodation had generated a significant degree of liquidity that might be contributing to signs of potentially excessive risk-taking in financial markets evidenced by quite narrow credit spreads, a pickup in initial public offerings, an upturn inmergers and acquisition activity, and anecdotal reports that speculative demands were becoming apparent in the markets for single-family homes and condominiums".
* * * * *

Jan. 4 (Bloomberg) -- U.S. Treasury notes fell after minutes from the Federal Reserve's Dec. 14 meeting showed policy makers were more concerned about faster inflation.

The benchmark two-year note dropped the most in two months as the Fed concluded that interest rates were still below a level needed ``to keep inflation stable'' and that price increases were likely to become a risk to stable growth. Inflation erodes the value of a bond's fixed-payments. – END-

From the King Report late last evening:

The NY Post’s Tim Arango: "Executives at United States companies sold stock last year at levels not seen since the bursting of the Internet bubble in 2000. Executive stock sales — known as insider sales — rose 20 percent in 2004 through Dec. 24, while purchases by insiders grew 13 percent to $2.11 billion, according to Washington Service, a company that tracks such transactions." http://www.nypost.com/business/37541.htm

Greenspan and Bush bet that by funneling billions of dollars into corporations via quick fix remedies the economy would rebound when corporations spent their orchestrated riches on capex and new jobs. That wish upon crony capitalism is an abject failure. Also, Easy Al thought that he could engineer another covert bailout like his carry trade for the Money Center Banks in 1991-1992. This funneled prudent peoples’ saving into banks and hedgies that leveraged up. Once again the average guy was sacrificed.

The WSJ’s survey of 56 economists has a consensus GDP of about +3.6% for 2005. When have you ever seen or heard main stream economists, especially on The Street, forecast a recession?

The Washington Post: "The Bush administration has signaled that it will propose changing the formula that sets initial Social Security benefit levels, cutting promised benefits by nearly a third in the coming decades, according to several Republicans close to the White House." http://www.washingtonpost.com/…26-2005Jan3.html?nav=rss_

-END-

Clift Whiteman has a question for us:

3) Finally, it would help me if not others if you explained some evening how the COMEX works. For the life of me I can't figure out what your and Brimelow's comments on "open positions" really mean. In other words, I don't understand the moves that bulls and bears make which effect the open contract positions. It's like CNBC running the commodities prices every 15 minutes using symbols that I can find nowhere and then not even showing changes over the previous day's close. They mean something only to a tiny handful of viewers in my opinion.

In closing, you know I have been a supporter for several years and you are the best. You work so hard to dig out everything that might be of interest and keep us betting on $1000/oz gold in the not too distant future. Keep it going and good luck!

***

We all will win the day Clift. Just a matter of time.
Regarding open interest, it is really very simple. For every buyer on the Comex, there is a seller. These buyers and sellers are categorized by the CFTC and the brokerage houses into small specs, large specs and commercials. The nomenclature of each is self-explanatory. As a total, they make up the Open Interest. Market watchers watch the daily changes and make interpretations about what the changes mean. This is where it gets complicated as what seems right to the goose, might appear differently to the gander. To go into detail on that subject would take an entire MIDAS.

One simple analysis:

A market starts to rise and speculators pile in to take advantage of the price rise. They keep buying and the open interest shoots way up. The market gets too frothy (too many of them) and the market corrects lower. The specs then liquidate and the open interest falls. If it falls low enough, some observers will suggest the market is washed out.

Hope that helps.

We always receive solid input from this veteran GATA supporter:

Bill,
Manipulation exists when all logic is defied. Yesterday and today meet that criteria. Tsunamis, war, credit crisis, Fannie crisis, pension crisis, dollar crisis and a raft more crisis' - no matter. In addition to the blatant $6 upside cap/ limitless downside rule another rule is gold never gets a follow through rally day while there is always a follow through decline. Yesterdays WSJ year end review section only gave gold and the metals a few paragraphs on page R-11. The summary was basically "you missed the gold rally, it's too late, might as well stay away". If the WSJ were your broker you would fire them for incompetence. Banking and the media are powerful allies. On a new year when the world's stability (literally) gets shakier there are 2 or 3 BB's at the Comex with their finger on the short sell cannon button defying logic. Millions of people worldwide know otherwise. Logic doesn't like being defied for very long. Logic will prevail. It is illogical to think the more FRN's you print, the more valuable they become. In the meantime we sit through yet another day of criminal endeavor.
Best for the new year,
James McShirley

This Gartman guy knows as much about gold as Chief Inspector Clouseau of Pink Panther fame. His latest bit of dingbat commentary:

Turning our attention to gold and the precious metals, we note two things. Firstly, we note that we were indeed inordinately fortunate to have stood down from a long held bullish position on gold several weeks ago when spot gold was trading between $453-455. We remain upon the sidelines, noting that spot gold is back to a very important interim uptrend line that simply must hold here at the $428-430 level. We fear it won't however, for the gold market bulls remain convinced of the efficacy and soundness of their position, and the GATA folks are again aflame as they blame the weakness upon various market machinations by governments and large Wall Street organisations. This is utter nonsense of course but we shall never be able to convince GATA of that fact... and even if it is not nonsense; even if GATA were truly on to something, we should care not a whit for the market will move where the market needs to move. The gold market had become far too heavily invested-in by the public, and those public investors have to be taken out. They are and they will be, with the job likely not finished until spot gold trades below $400/oz once again, at which point we shall likely return to our long term bullish positions. Until then, like Chance the Gardner in Peter Seller's last movie, "We like to watch."

-END-

This is an example of present silver/gold sentiment among the "interested" public:

Today, I dumped the last of my gold and silver stocks.
I will never touch those pieces of garbage again.
Half of my proceeds will be used to buy physical gold and silver, on a dollar cost average basis during periods of weakness.
The other half will be used to buy the "Cult" Internet stocks like GOOG which sell for outrageous valuations, but never go down on a day like today………..
Good luck to all you guys at GATA.
I have finally had enough of the gold stocks.
New Years Resolution: NEM, PAAS, SSRI, etc. Never Again!!!!

Crude oil leaped up $1.78 per barrel to $43.91. Only 18 months ago, $43+ oil was considered to be a disastrous price for the US economy.

Veteran Café members will remember "Azteca de Oro" who sent us so much valuable input years back when he had the time to do so. He says hello to all from Mexico with some input on oil. While some of the news releases will be repetitive, I found it useful to see how an oil industry pro views it in toto:

Hi Bill:
Despite today's battering of metals and the shares, I feel that the cabal is finally reaching their manipulative limit. The light at the end of the tunnel is blindingly strong now. We know that they have their "hidden" hand in every market, and I am even strongly suspecting now that they are tinkering with the climate, but reality will soon catch up with them.....currently they are holding oil down desperately, as evidenced by the disappearing premium of WTI/Brent, not to mention the complete lack of new giant field discoveries in the last 2 decades and other very strong structural imbalances.

Soon, we will see oil going up again, despite all their efforts, and when it reaches $60 and it keeps going, we will see how the Gold-Oil relationship starts to kick in really strong again as Euroland will then have to bow to reality too ....
Best Regards,
"Azteca de Oro"....

Happy 2005......

Please see below oil analysis....the NWO Fed-oil-gold cabal got too smart for their own good.....

Date: Sat, 01 Jan 2005 21:24:36 -0500 (EST)

Happy New Year!

There are three very important messages I wish to relay to commence what could prove a historical year. This will be the first of three E-mails making the points. All the emphasis seen in the articles are ours.

1. The media has confirmed SenderBerl's long standing position regarding China all over Canada. Let the following extract make the point:
Source: http://www.villagevoice.com/issues/0452/ridgeway.php

WASHINGTON, D.C. Running below the surface of the year-end self-congratulatory assertions of American supremacy (as in Monday's Washington Times: "The world really is becoming more 'American' ") are warnings, often ignored, of our decline. The steady loss of the dollar against the euro is one. The spiraling trade deficit is another.

And in the past weeks, there were two serious economic signs signaling momentous change, if not outright decline.

The first concerns China's invasion of Canadian oil fields, heretofore a U.S. energy fiefdom. The second came in the form of an all-but-hidden report from the Department of Agriculture that America, the breadbasket of the world, is now a net importer of food.
OIL If the half-dozen planned projects worth $2 billion go through, Canada, our No. 1 energy supplier, could end up sending as much as one-third of its total oil exports to China.

One project would give the Chinese a 49 percent interest in a 720-mile-long pipeline running from Alberta to British Columbia. The Chinese are also eyeing an expansion of a second Canadian pipeline system, and they're discussing gaining an interest in companies with oil leases.

Much of this interest centers on extracting oil from oil sands. In the U.S., prospects for an oil sands development during the energy crisis of the early 1970s never got off the ground. It was discussed along with coal gasification as a possible alternative to what the industry at the time insisted were declining reserves. But when prices were deregulated and rose, along with profitability, all the talk about coal gas and oil sands died down. For the big international oil companies, oil sands historically have been dicey because of the high development cost, and hence reduced profitability.

However, as Kang Wu of the East-West Center in Honolulu told The New York Times last week, "For China, it is foremost about securing supply and secondly about profits." And that is one reason China is willing to go so far abroad. China's energy consumption is up some 40 percent in the past year, making it the second-biggest energy consumer in the world, ahead of Japan. Its booming economy depends on fossil fuels, especially oil imports. By 2020 China is expected to be importing two-thirds of its oil, some 80 percent of it from the Middle East.

It currently imports oil from Oman and Yemen, and China has explored deals with Saudi Arabia. Its imports of natural gas come from the Middle East as well as from Australia, and there is a possibility of China importing Caspian Sea gas through an extensive pipeline that would run all the way from Shanghai across the country into the rich Caspian finds of Central Asia.

As China's energy needs grow, emphasis shifts to protecting supply lines running through South Asia, some of them close to the always contentious straits between Taiwan and China.

For the U.S. military, protecting energy supply lines always has been a prime consideration of national security. And these economic shifts in Asia can only mean a further strain on U.S. military operations in that part of the world. More immediately, a diversion of Canadian petroleum resources to China is about the worst thing that could happen to the U.S.

Since the '70s energy crisis, we have been seeking to diversify supplies, trying to shed our dependence on the Middle East, and as a result the U.S. now relies increasingly on Canada and Mexico. We have always viewed Canadian energy resources as a backup-to be used when we are in need.

To say they are taken for granted is an understatement. We view them as our own. Free trade makes that condition even more explicit. If Canada actually begins to commit resources to the Chinese, that will lead to more direct U.S. manipulation of Canadian politics and economics; right-wing Republicans will use the China-Canada deals as one more argument for stepped-up drilling in Alaska, the eastern front of the Rockies, and on the outer continental shelf, all of them areas where remaining U.S. petroleum stocks are located.

End Extract