Who is smarter? The Chinese government or Ben “strong housing market” Bernanke? The Chinese have $900 billion of toxic US Treasury bonds in their hands. They know exactly what Bennie and Timmy are trying to do. The Chinese leaders are smart and think long-term. Long-term to leaders in the US is the two year election cycle. What would you do if you knew absolutely that someone was going to screw you out of billions of dollars by devaluing the currency that they will pay you with? I would quietly convert my bonds into hard assets that will retain their value over time. I’d buy gold. I’d buy oil wells. I’d buy copper mines. I’d buy agricultural land.
I’d do this vewy vewy quitely because I wouldn’t want the prices to spike upwards before I’ve accumulated the hard assets. I wonder what the Chinese are doing?
China Central Bank absorbing substantial amounts of gold without disrupting market
China’s official gold reserves are seen to be being effectively held at whatever level the country’s government thinks is of political and financial advantage.
Author: Lawrence Williams
Posted: Thursday , 23 Dec 2010
Is China increasing its gold reserves but without reporting it, yet again? Or is this pure market speculation? The odds would favour the former, but the markets just won’t know until the Chinese announce the fact at a point in time of their choice. Such an announcement is politically very sensitive, and if several hundred tonnes of gold have indeed quietly and surreptitiously been moved into the Asian giant’s coffers, which this writer feels is more likely than not, then news of this could have a very sharp upwards price impact for the precious metal.
It will be remembered that China’s official reserve figure is 1,054 tonnes – an announced increase of over 75%, supposedly achieved over a three-year period to 2009. But there’s no particular reason to even believe this figure. Chinese official gold reserves are at whatever level the government is prepared to announce. Even if its official gold holdings are indeed 1,054 tonnes there could be, and probably is, a substantial amount of additional gold in some secondary account which China doesn’t feel the need to repor – at least not yett.
China can build its reserves without overtly appearing to do so, by buying in its own gold production, which not only includes mine production, but also output from custom refining, either of gold directly, but also from byproduct gold from its vast base metals refining sector. The mining companies will receive payment for their concentrates which may include a premium for contained gold, but no-one, apart from perhaps the Chinese government, knows exactly how much refined gold is produced from these base metals concentrates – the amount could be quite substantial.
With its announced annual mined production at 314 tonnes last year and expected to be around 320 tonnes in 2010, there could well be another 600 to 650 tonnes or perhaps more, moved into ‘unofficial’ reserves, since that last announcement and continuing to absorb its own gold at that rate would mean China’s reserves would effectively be doubled by end 2011 to some 2,000 tonnes. This is still well short of the 10,000 tonne target suggested by some Chinese officials, but on its way there, and assumes also that the 1,054 tonnes of reserves announced by the Chinese in April 2009 was indeed the sum total of that country’s holding at that time!
George Milling Stanley of the World Gold Council would seem to support this premise. He has been reported as saying: “China has been buying local gold mine production and the production of local refineries – whether that is by-product gold or recycled gold – for a number of years… They have been gradually building gold reserves, not by cashing in dollar assets which might upset the dollar market but they have been quietly doing it by buying local gold production”.
But why be so circumspect in the announcement of reserves? The main factor is that confirmation of a substantial increase in Chinese reserves would almost certainly lead to a big jump in the gold price. A big gold price rise is seen in many financial circles as an effective devaluation of the dollar – and China holds trillions of dollars in its reserves. This is also the reason China did not snap up the IMF gold which was on sale. An overt purchase of a substantial amount of the IMF gold by China would, the Chinese judged, have had a very sharp impact on the gold price.
Meanwhile China is also believed to be offloading dollars to the maximum extent it can without overtly affecting the currency markets. It is doing this via state-owned companies and its sovereign Wealth Fund buying up overseas assets – notably in the minerals sector which also has the advantage of securing supplies for its huge industrial machine.
In today’s politics, there is an angle to almost all government announcements and dictats, and China is certainly no exception. It will probably not expose the true position of its gold reserves unless and until it sees political advantage in so doing.
Ron's Matrix Sentry says:
[...] BE VEWY VEWY QUIET, WE’RE HUNTING WABBITS (GOLD) [...]
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28th December 2010 at 11:02 am
Jmarz says:
The Chinese are not stupid. They will do whatever is best for their country in the long run. End of the story. Lookie here: “China’s State Grid buys seven Brazilian power distributors”
This was a 1 billion dollar investment. The dollar is toast……..
http://www.investinbrazil.biz/investmentbrazil/2010/12/chinas-state-grid-buys-seven-brazilian-power-distributors/
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28th December 2010 at 11:47 am
Kill Bill says:
Meanwhile, in America:
http://www.physorg.com/news/2010-12-food-availability-men-stone-weight.html
The researchers found that the average man in 2000 ate more food than the average 1986 man – in theory enough to make him 4.7kg [10.3 lbs] heavier
Fat, stupid, lazy, wussy, preserved, debt serf ovis aries.
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28th December 2010 at 12:19 pm
Yojimbo says:
Jmarz
How much is a Brazilian? Does it come after a Trillion?
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28th December 2010 at 2:47 pm
cahuitabeachbound says:
Kill Bill:
As Dean Vernon Wormer told Flounder, “Son, fat drunk and stupid is no way to go through life”.
I remember telling this to a fraternity brother and he said it’s actually the only way to go through life!
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28th December 2010 at 3:43 pm
Opinionated Bloviator says:
What is more inherently trustworthy as a store of value, a bunch of “securities” created and then “valued” by Goldman Sachs financial engineers or gold or silver?
One government has chosen Wall Street’s paper wealth, the other has put it’s faith in goods of real value and commodities that not only deliver “real world” value add but have also been regarded as money for thousands of years.
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28th December 2010 at 4:11 pm
CrazyCanuck says:
Yes the Chinese are hedging their bets against the US dollar with Gold, oil and every other commodity as any good investor would do – but they still have a shit load of US dollars (and US treasuries) left. Who will be smiling when deflation reemerges shortly and the US dollar (and to some degree US treasuries) go way up. It is only American hubris (both by the government and the individual) that thinks that the debtor can ever get ahead of the creditor. Just like the “something for nothing” idiots who take out a $300,000 Mortgage with nothing down at 2% – and think they are smarter than the banks – they will get screwed just as bad as the US as whole. In the end – the CREDITORS always win!!
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28th December 2010 at 11:36 pm
eugend66 says:
Hehehe .. .
“The tax system does not exist because they need the money ( The Bernank can simply print it ). Taxes are what make the Dollar legit. You can barter, or use alternate record keeping schemes to avoid the dollar – but you WILL have to pay taxes in Dollars – or the state will employ violence against your person. It is no coincidence that the Income Tax system and the Federal Reserve system came into being at the same time ( around 1913).” HT to ZH follower.
Soo … , socialism (you hold the title, Gov`t taxes you) will be the expected result.
Watch it, it`s Alive .. .
!
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28th December 2010 at 8:25 am
Thinker says:
Gold isn’t the only thing China is taking a position in. Remember, this is a culture that thinks/plans generations ahead.
China to cut crucial rare earths export quotas
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28th December 2010 at 1:22 pm
Smokey says:
A concession already ? Just go ahead and admit to all your readers that you were out of your mind to challenge the wisdom of Smokey. This article and preface to it IS AN ADMISSION THAT YOU WERE WRONG. You admit that China is full speed ahead, divesting their shit FRN’s and buying real assets. Thank-you Smokey for showing me the light. I always have your infinite wisdom to rely on to show me the way. Smokey always sees the big picture while everyone else is lost in the wilderness, reaching for false prophets like Ron Paul and Paul Krugman and James Kunstler. Smokey the visionary.
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28th December 2010 at 1:34 pm
Administrator says:
Smokey
Are you talking to me? Remember what happens next.
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28th December 2010 at 7:10 pm