China and India could soon account for more than half the world's annual gold production.

Dear Subscribers,

We’ve done a great deal of reporting on Chinese and Indian Central Bank purchases of gold. We’ve also covered the step-by-step liberalization in both countries that has made private ownership of gold dramatically easier.

What kind of impact has this had on the gold market?

Canadian billionaire and precious metals expert, Eric Sprott, says Chinese gold demand is soaring. China imported five times as much gold in the first 10 months of 2010 as in all of 2009.

Shockingly, this importation of gold has very little to do with the traditional use of gold - jewelry.

According to the World Gold Council, Chinese demand for gold bullion increased at nearly nine times the rate of Chinese demand of gold jewelry, from September 2009 to October 2010.

Sprott says gold demand from China and India could soon account for more than half the world's annual gold production.

China is also a major importer of silver. Sprott says China exported 100 million ounces of silver in 2005. This is in sharp contrast to 2010, when China imported more than 120 million ounces. That's a 200 million ounce shift in a market that produced 889 million ounces in 2009. "A truly tectonic shift in demand," according to Sprott.

National Mortgage Payment Strike Brewing?

Glen Beck is now insisting that there are liberal political operatives that are organizing a national mortgage strike. Late last week, he played video and audio recordings made at what he described as the largest annual meeting of liberals in the country that clearly supported his accusation.

I don’t have a dog in this hunt, BUT I do think it is increasingly likely that we may see some sort of mass mortgage strike take place if the economy doesn’t turn around, and unemployment doesn’t start to decline.

New housing sales are so bad they’re at their worst levels since 1965. Existing home sales continue to lag badly. The number of non-performing loans is spiking. Banks continue to be uncooperative with mortgage holders in distress.

I have a niece, for example, who managed to renegotiate her mortgage with one of the major banks. The paperwork was signed sealed and delivered. Yet after four months, during which she held her end of the bargain, she was suddenly informed by the bank by registered letter that the deal negotiated was terminated. Trust me; this is going on with tens of thousands of people.

If you’re wondering why shares of Bank of America have been stuck in its current price range and drifting lower in price, the reason is simple: like other big mortgage holders in this country, Bank of America is sitting on hundreds of thousands of non-performing loans on properties that aren’t even worth half of what is owed on them.

Bank of America and others would do well to adopt a principal or dramatic interest rate reduction program for all homeowners who live in their homes and who are either struggling to make their payments or who have stopped paying all together. Real Estate investors and speculators would be and should be exempt from the program.

The alternatives to some sort of NEW DEAL for homeowners are not pleasant. If no action is taken to resolve the non-performing mortgage crisis, real estate prices will continue to drop in most U.S. markets, the economy will continue to struggle and the risk of a legitimate populist mortgage strike being organized in this country will become increasingly likely.

The danger of a populist mortgage strike of any substantial size cannot be understated. It could well be the catalyst of a complete banking and monetary collapse.

I realize many people will argue that reducing the principal on homes with non-performing loans will reward people for not paying their mortgages and will encourage many more people to also stop paying their mortgage payments.

The problem, of course, with this argument is if we do nothing, if no sensible alternative is navigated, the vast majority of these underwater homes will still sell for half or less of the loans owed and the banks holding the mortgages will loose even more money paying tax bills, code violations and home insurance policies. In essence, the money is already lost and the banks holding large numbers of these mortgages are just losing more and more money by not recognizing the problem.

Also keep in mind that when Bank of America bought Countrywide it paid a fraction of the original mortgages owed and received loan guarantees, TARP and literally money at almost zero interest rates. In short, we seem very willing to help big banks and Wall Street giants with corporate welfare and bailouts, but unwilling to help our middle class.

Again, this strategy could trigger a national mortgage protest that literally triggers a collapse of the U.S. Dollar.

The scary part of all this – this isn’t the only scenario that I think could trigger a collapse of our banking system and currency. The risks are many and varied thanks to an explosion of our national debt and contingent liabilities.

Protect yourself. Make sure you’re holding gold, silver and platinum. When the bottom falls out of the Dollar, I want you to be among the few that don’t suffer a catastrophic financial crisis of their own.

This morning Ron Insana of CNBC pointed out that when 42% of every dollar spent on financing the debt it undermines both the underlying currency and value of this nations bonds.

This imbalance is being reflected in commodity prices with $105 barrel oil, cotton prices at record levels and food prices hitting 2008 highs.

Typically, when commodities prices start to spiral higher like this central banks start running into the U.S. Dollar to preserve their savings. After all, the dollar has been the reserve currency since World War I.

But not this time. The dollar continues to weaken as Central Banks are shedding dollars and reducing their dollar reserves. Last quarter cutting their dollar holdings by about $9 billion, according to Nomura Securities’ Jens Nordvig, global head of G10 FX Strategy.

What are they buying instead? Gold!

The yellow metal hit a fresh record high last Thursday, while the dollar index dropped to a 15-month low. The news had Fast Money’s Brian Kelly looking to add more gold and silver longs to his portfolio Thursday morning.

“What is working is gold, silver said Kanundrum Capital’s Kelly. “I wish I had more.”

Gold and silver have become the inflation hedges of choice for some investors. Gold hit an intra-day high Thursday of $1,448 per ounce. Silver has recently hit 31-year highs, rising to an intra-day high of $38 per ounce.

Best Wishes,

James DiGeorgia

Editor