Best of the Week
Most Popular
1. Next Financial Crisis Is Already Here! John Lewis 99% Profits CRASH - Retail Sector Collapse - Nadeem_Walayat
2.Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - James Burgess
3.Gold Price Trend Analysis - - Nadeem_Walayatt
4.The Beginning of the End of the Dollar - Richard_Mills
5.Stock Market Trend Forecast Update - - Nadeem_Walayat
6.Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - Troy_Bombardia
7.Precious Metals Sector: It’s 2013 All Over Again - P_Radomski_CFA
8.Central Banks Have Gone Rogue, Putting Us All at Risk - Ellen_Brown
9.Gold Stocks Forced Capitulation - Zeal_LLC
10.The Post Bubble Market Contraction Thesis Receives Validation - Plunger
Last 7 days
2019’s Hottest Commodity Is About To Explode - 15th Oct 18
Keep A Proper Perspective About Stock Market Recent Move - 15th Oct 18
Is the Stocks Bull Dead? - 15th Oct 18
Stock Market Bottoms are a Process - 15th Oct 18
Fed is Doing More Than Just Raising Rates - 14th Oct 18
Stock Markets Last Cheap Sector - Gold - 14th Oct 18
Next Points for Crude Oil Bears - 13th Oct 18
Stock Market Crash: Time to Buy Stocks? - 12th Oct 18
Sheffield Best Secondary School Clusters for 2018-19 Place Applications - 12th Oct 18
Trump’s Tariffs Echo US Trade Policy That Led to the Great Depression - 12th Oct 18
US Dollar Engulfing Bearish Pattern Warns Of Dollar Weakness - 12th Oct 18
Stock Market Storm Crash, Dow Plunges to Trend Forecast! - 12th Oct 18
SP500 Stock Market Sell Off Well Forecast by President Trump - 11th Oct 18
USD and US Tr. Yields Retreat, GBP Gains on Brexit-deal Report - 11th Oct 18
Loss Of Yield Curve "Shock Absorber" Could Mean A Rough Ride Ahead For Markets & Housing - 11th Oct 18
Just How Bearish is the Stock Market’s Breadth? - 11th Oct 18
Here’s Why Gold Stocks, Gold, and Silver Are Great Buys Now - 10th Oct 18
Russian Ruble Technical Chart Analysis and Forecast - 10th Oct 18
Society Trends To Keep in Mind in the USA - 10th Oct 18
[eBook] How to Identify Turning Points in the Market - 10th Oct 18
Euro Vulnerable as Slowing Growth Reveals Underlying Issues - 9th Oct 18
Construction Companies to Watch For in 2019 - 9th Oct 18
ECB Meeting Minutes and US Inflation Data in Focus - 9th Oct 18
Interest Rate Shock-Time to Find Out Who has been Swimming Naked - 9th Oct 18
Unintended Consequences of Expanding Sheffield's Best Ranking State Secondary Schools - 9th Oct 18
Crude Oil Price Trend Forecast 2018 Update - 9th Oct 18
Inflation Is Starting To Heat Up - 8th Oct 18
Stock Market Seasonal Influence at Work - 8th Oct 18
Barrick Randgold Deal Breathes New Life into Gold - 8th Oct 18
Stock Market Sell Off, Dollar Rally Expected, Now What? - 8th Oct 18
The Chartology of Gold and Silver - 8th Oct 18
The Income for Life Playbook - 8th Oct 18

Market Oracle FREE Newsletter

Trading Any Market

China’s Secret Gold Hoarding Strategy

Commodities / Gold and Silver 2015 Aug 06, 2015 - 08:33 PM GMT

By: MoneyMetals

Commodities

Stefan Gleason writes: China’s recent stock market gyrations have some analysts now calling China the biggest bubble in history. But those who write off China because of market volatility are missing a more important long-term trend of Chinese geopolitical and monetary ascendancy. That trend shows no signs of abating.

China’s leaders have a clever strategy, and Western financial powers may someday wake up in shock when they realize what has occurred.


It’s true that the Chinese government has helped fuel artificial demand for property and equities. China skeptics who argue that these artificially inflated markets will crash to much lower levels could well prove to be correct. Some China doubters also argue that a downturn in China’s economy will put downward pressure on commodity prices.

Commodities – from crude oil to copper to gold and silver – have already suffered a severe cyclical downturn. Commodity markets tend to be leading indicators, moving in advance of whatever economic story of the day the financial media are telling.

But single-day drawdowns of more than 8% in the Chinese stock market this summer certainly caused some forced liquidations of precious metals positions.

The very fact that booms and busts in China’s markets and economy can now exert heavy influence in globally traded markets such as commodities proves the point that China’s influence isn’t on the wane. Not by a long shot. Even if China’s double-digit rates of growth in the early 2000s prove fleeting and never return, China’s economy still remains on track to eclipse the U.S. economy in the years ahead as the world’s largest.

China, Russia Are Quietly Emerging as World’s Gold Buyers

Chinese officials aim to ultimately to challenge the America’s standing as the world’s superpower. That’s why they’re forming a strategic alliance with Russia, an adversary of the U.S. That’s why both the Russian and Chinese central banks have quietly emerged as the world’s largest gold buyers.

In July, the People’s Bank of China reported that it has added more than 600 tons of gold bullion to its stockpiles since 2009, taking the total to 1,658 tons. That represents a 60% jump in gold assets in just six years.

In fact, all of that new metal was added to central bank’s ledger in June 2015.

With gold prices down in June, there's no way the actual buying had occurred then. It appears central bank officials simply moved that metal over from the books of China's state-owned banks, which can hold metal secretly.

So that’s just what the Chinese are reporting officially.

Unofficially, according to MarketWatch columnist David Marsh, “China probably has a lot more gold than it admits.” That’s because the Chinese government regularly acquires gold directly from China’s mining industry.

The transactions are settled in yuan rather than dollars, so most or all of these “internal” gold purchases can avoid showing up as foreign reserve assets.

In examining gold flows into China as well as Chinese gold production, some experts believe that China actually holds more than 10,000 tons of gold, not the “paltry” 1,658 tons the People’s Bank of China is disclosing.

China Has an Incentive to Understate Its Gold Hoard

It makes logical sense that China would understate its gold aspirations. If you had the means to acquire hundreds, or even thousands, of tons of gold, you’d want to do so as stealthily as possible in order to avoid tipping off the market.

If your strategic objective was to dramatically boost gold reserves over a period of several years, you wouldn’t want to see the price rise – at least not while you’re still accumulating. And if you had no ethical qualms about interfering in the market, you’d want to rig prices lower so you could obtain more ounces.

Chinese officials are more than willing to manipulate markets, whether through subterfuge, deceit, or outright force. Recently, in an effort to prop up the stock market, they tried to forbid people from selling shares of stocks. How heavily involved China is in managing the gold market is impossible for an outsider to know.

But there is plenty of evidence to suggest that China is covertly buying gold while dumping U.S. Treasuries. JP Morgan analyst Nikolaos Panigirtzoglou calculated that China’s foreign exchange assets got depleted by $520 billion over the past five quarters. Most of that $520 billion in paper asset dumping comes, presumably, from China’s massive holdings of Treasury securities.

China Wants Admission to the Global SDR Club

If China continues to unload U.S. bonds at a feverish pace, the Federal Reserve might be forced to launch a new bond-buying campaign. That, in turn, would diminish the credibility of the U.S. dollar as China seeks inclusion of its yuan into the International Monetary Fund's Special Drawing Rights (SDR) currency basket.

As Reuters reported, China “is pushing for the increased use of the yuan for trade and investment as part of a long-term strategic goal to reduce dependence on the dollar.” The yuan’s ascendancy to the status of a top-tier SDR currency would go a long way toward making the Chinese currency a serious global competitor to the U.S. dollar.

However, if it were known that China actually had 10,000+ tons of gold on hand, other countries would more likely balk at China’s pending petition to join the International Monetary Fund’s exclusive SDR club. (A decision is expected this fall.)

China’s gold-accumulation strategy will go a long way toward making China more independent of the dollar and other fiat currencies.

If you actually believe what the People’s Bank of China reports as its gold reserves, then it has a long way to go to catch up with other countries. While China’s official stash is the world’s sixth largest in absolute terms, it ranks much lower in relation to its economy and its total foreign reserves.

China’s admitted gold hoard represents just 1.6% of its foreign exchange holdings. By comparison, Russia’s gold bullion accounts for 13.4% of reserves.

Whether it owns 1,658 tons or upwards of 10,000 tons, China’s appetite for gold is far from being satisfied. The Chinese government will continue to buy, both officially and unofficially.

China may never establish a model sound money system; nor is that its goal. China simply appreciates the universality of gold. And, as the saying goes, “gold goes where it’s most appreciated.

Whether you’re a Communist or a capitalist, whether you speak Mandarin or English, gold remains the one permanent, immutable common denominator. Gold’s value has been recognized universally for hundreds of years and will continue to be recognized universally regardless of whatever market gyrations or economic or political strife the future may bring.

By Stefan Gleason

MoneyMetals.com

Stefan Gleason is President of Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.

© 2015 Stefan Gleason - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules